New York dsupreme Court APPELLATE DIVISION FIRST DEPARTMENT

Transcription

1 New York County Clerk s Index No /2012 To Be Argued By: MARC E. KASOWITZ New York dsupreme Court APPELLATE DIVISION FIRST DEPARTMENT ACE SECURITIES CORP., HOME EQUITY LOAN TRUST, SERIES 2006-SL2, by HSBC BANK USA, NATIONAL ASSOCIATION, solely in its capacity as Trustee pursuant to a Pooling and Servicing Agreement, dated as of March 1, 2006, against Plaintiff-Respondent, DB STRUCTURED PRODUCTS, INC., Defendant-Appellant. BRIEF FOR PLAINTIFF-RESPONDENT MARC E. KASOWITZ, ESQ. MICHAEL M. FAY, ESQ. KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 1633 Broadway New York, New York (212) mkasowitz@kasowitz.com mfay@kasowitz.com Attorneys for Plaintiff-Respondent REPRODUCED ON RECYCLED PAPER

2 TABLE OF CONTENTS Page TABLE OF AUTHORITIES... iii PRELIMINARY STATEMENT...1 COUNTER-STATEMENT OF QUESTIONS PRESENTED...5 COUNTER-STATEMENT OF THE CASE...6 I. Factual Background...6 II. Proceedings Below...9 STANDARD OF REVIEW...10 ARGUMENT...11 I. The Supreme Court Correctly Held That The Trust s Claims Are Not Time Barred...11 A. DBSP Breached The Agreements, And The Trust s Cause Of Action Accrued, When DBSP Refused To Abide By Its Contractual Repurchase Obligation DBSP s Repurchase Obligation Is A Continuing Obligation That Exists For The Life Of The Trust DBSP Concedes That The Trust s Cause Of Action Accrued When DBSP Rejected The Trustee s Demand For Cure Or Repurchase...19 B. DBSP s Reliance On Hahn Is Misplaced...25 C. DBSP s Remaining Accrual Arguments Are Meritless...28 II. In Any Event, This Action Was Filed Within Six Years Of The Closing Of The Agreements...30 A. The SWN Commenced This Action Within CPLR 213(2) s Limitation Period...30 i

3 B. The Nomura Decision Is Based On A Flawed Analysis Of New York Case Law...35 III. The Supreme Court Correctly Rejected DBSP s Hypothetical Arguments Regarding Charged Off, Liquidated Or Released Mortgage Loans...38 A. New York Courts Do Not Resolve Disputed Issues Of Material Fact On CPLR 3211 Motions...39 B. DBSP Must Repurchase All Defective Loans DBSP Must Repurchase Charged Off Or Released Mortgage Loans DBSP Must Repurchase Liquidated Mortgage Loans...49 C. The Supreme Court Did Not Rewrite The Agreements In Rejecting DBSP s Hypothetical Contentions Regarding Charged Off, Released Or Liquidated Mortgage Loans...53 CONCLUSION...55 ii

4 TABLE OF AUTHORITIES CASES Page(s) 2470 Cadillac Res., Inc. v. DHL Express (USA), Inc., 84 A.D.3d 697 (1st Dep t 2011)...55 Airco Alloys Div. v. Niagara Mohawk Power Corp., 76 A.D.2d 68 (4th Dep t 1980)...13 Am. Home Assur. Co. v. Scanlon, 164 A.D.2d 751 (1st Dep t 1990)...33, 34, 38 Assured Guar. (UK) Ltd. v. J.P. Morgan Inv. Mgmt. Inc., 80 A.D.3d 293 (1st Dep t 2010)...41 Assured Guar. Mun. Corp. v. Flagstar Bank, FSB, 2013 U.S. Dist. LEXIS (S.D.N.Y. Feb. 6, 2013)...43, 44, 45 Beller v. William Penn Life Ins. Co. of N.Y., 8 A.D.3d 310 (2d Dep t 2004)...13 Benn v. Benn, 82 A.D.3d 548 (1st Dep t 2011)...11 Bojanovich v. Woitach, 2013 N.Y. Misc. LEXIS 2366 (Sup. Ct. N.Y. Cnty. June 3, 2013)...31 Bulova Watch Co. v. Celotex Corp., 46 N.Y.2d 606 (1979)...13, 14, 15 Bumpus v. N.Y. City Tr. Auth., 66 A.D.3d 26 (2d Dep t 2009)...30 Carrick v. Cent. Gen. Hosp., 51 N.Y.2d 242 (1980)...36, 37, 38 CIFG Assur. N. Am., Inc. v. Goldman, Sachs & Co., 2012 N.Y. Misc. LEXIS 3986 (Sup. Ct. N.Y. Cnty. May 1, 2012)...40 Continental Casualty Co. v. Stronghold Ins. Co., 866 F. Supp. 143 (S.D.N.Y. 1994)...21, 22 iii

5 Continental Casualty Co. v. Stronghold Ins. Co., 77 F.3d 16 (2d Cir. 1996)...passim Craven v. Rigas, 71 A.D.3d 1220 (3d Dep t 2010)...24, 29 Deutsche Alt-A Sec. Mortg. Trust, Series 2006-OA1 v. DB Structured Prods., Inc., 2013 U.S. Dist. LEXIS (S.D.N.Y July 24, 2013)...29, 40, 45 Elie Int l, Inc. v. Macy s W. Inc., 106 A.D.3d 442 (1st Dep t 2013)...27 Empire 33rd LLC v. Forward Ass n, 87 A.D.3d 447 (1st Dep t 2011)...24 Fairbanks Capital Corp. v. Nagel, 289 A.D.2d 99 (1st Dep t 2001)...33, 35, 38 First Place Bank v. Skyline Funding, Inc., 2011 U.S. Dist. LEXIS (N.D. Ill. July 27, 2011)...53 Florey v. Meeker, 240 P. 2d 1177 (Or. 1952)...47 Franconia Assocs. v. United States, 536 U.S. 129 (2002)...24 Frankart Furniture Staten Island, Inc. v. Forest Mall Assocs., 159 A.D.2d 322 (1st Dep t 1990)...34 Fulgum v. Town of Cortlandt Manor, 19 A.D.3d 444 (2d Dep t 2005)...35 Ganley v. Troy City Nat l Bank, 98 N.Y. 487 (1885)...21 George v. Mt. Sinai Hosp., 47 N.Y.2d 170 (1979)...36, 37, 38 Giambrone v. Giambrone, 140 A.D.2d 206 (1st Dep t 1988)...32 iv

6 Goldberg v. Camp Mikan-Recro, 42 N.Y.2d 1029 (1977)...passim Gordon v. Credno, 102 A.D.3d 584 (1st Dep t 2013)...41 Guilbert v. Gardner, 480 F.3d 140 (2d Cir. 2007)...13 Hahn Auto. Warehouse, Inc. v. Am. Zurich Ins. Co., 18 N.Y.3d 765 (2012)...passim HSBC Bank USA v. Nat l Equity Corp., 279 A.D.2d 251 (1st Dep t 2001)...46 HSBC Guyerzeller Bank AG v. Chascona N.V., 42 A.D.3d 381 (1st Dep t 2007)...34, 37, 38 Innophos, Inc. v. Rhodia, S.A., 10 N.Y.3d 25 (2008)...19 John J. Kassner & Co. v. City of N.Y., 46 N.Y.2d 544 (1979)...22 JP Morgan Chase v. J.H. Elec. of N.Y., Inc., 69 A.D.3d 802 (2d Dep t 2010)...11 Julias A. Nasso & Assocs. Concrete Corp. v. Trataros Constr., Inc., 79 A.D.3d 471 (1st Dep t 2010)...22 Kunstsammlungen zu Weimar v. Elicofon, 536 F. Supp. 829 (S.D.N.Y. 1981)...22, 23 Kunstsammlungen zu Weimar v. Elicofon, 678 F.2d 1150 (2d Cir. 1982)...21 LaSalle Bank Nat l Ass n v. Lehman Bros. Holdings Inc., 237 F. Supp. 2d 618 (D. Md. 2002)...45 LaSalle Bank Nat l Assn. v. CAPCO Am. Securitization Corp., 2005 U.S. Dist. LEXIS (S.D.N.Y. Nov. 14, 2005)...45 v

7 Lehman Bros. Holdings, Inc. v. Evergreen Moneysource Mortg. Co., 793 F. Supp. 2d 1189 (W.D. Wa. 2011)...27, 28 Lehman Bros. Holdings, Inc. v. Nat l Bank of Ark., 875 F. Supp. 2d 911 (E.D. Ark. 2012)...15 Lehman Bros. Holdings v. Key Fin. Corp., 2011 U.S. Dist. LEXIS (M.D. Fla. Mar. 31, 2011)...53 Leon v. Martinez, 84 N.Y.2d 83 (1994)...10 Lippe v. Genlyte Grp., Inc., 2002 U.S. Dist. LEXIS 6024 (S.D.N.Y. Apr. 8, 2002)...17, 25 Lopez v. Highmount Assocs., 101 A.D.2d 618 (3d Dep t 1984)...24 Lutzker v. Novo Nordisk Pharms., Inc., 2008 U.S. Dist. LEXIS (E.D.N.Y. Apr. 2, 2008)...30, 33 MASTR Asset Backed Sec. Trust 2006-HE3 v. WMC Mortg. Corp., 2012 U.S. Dist. LEXIS (D. Minn. Oct. 1, 2012)...52 MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 34 Misc. 3d 895 (Sup. Ct. N.Y. Cnty. 2012)...49 Nationwide Advantage Mortg. Co. v. Mortg. Servs. III, LLC, 2013 U.S. Dist. LEXIS (N.D. Ill. Apr. 25, 2013)...53 Nolfi Masonry Corp. v. Lasker-Goldman Corp., 160 A.D.2d 186 (1st Dep t 1990)...14 Nomura Asset Acceptance Corp. Alt. Loan Trust, Series 2005-S4 v. Nomura Credit & Capital, Inc., 2013 N.Y. Misc. LEXIS 2001 (Sup. Ct. N.Y. Cnty. May 10, 2013)...passim N.Y. Cent. Mut. Fire Ins. Co. v. Glider Oil Co., 90 A.D.3d 1638 (4th Dep t 2011)...13 Olsen v. 432 E. 57th St. Corp., 145 Misc. 2d 970 (Sup. Ct. N.Y. Cnty. 1989)...33 vi

8 Pavarini McGovern, LLC v. Tag Ct. Sq., LLC, 62 A.D.3d 680 (2d Dep t 2009)...52, 53 Rachmani Corp. v. 9 E. 9th St. Apt. Corp., 211 A.D.2d 262 (1st Dep t 1995)...24 Resolution Trust Corp. v. Key Fin. Servs., Inc., 280 F.3d 12 (1st Cir. 2002)...44 Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 60 A.D.3d 61 (1st Dep t 2008)...16 Rossi v. Oristian, 50 A.D.2d 44 (4th Dep t 1975)...24, 25 Russack v. Weinstein, 291 A.D.2d 439 (2d Dep t 2002)...24, 29 S. Wine & Spirits of Am., Inc. v. Impact Envtl. Eng g, PLLC, 104 A.D.3d 613 (1st Dep t 2013)...36 S. Wine & Spirits of Am., Inc. v. Impact Envtl. Eng g, PLLC, 80 A.D.3d 505 (1st Dep t 2011)...36 Schleidt v. Stamler, 106 A.D.2d 264 (1st Dep t 1984)...34, 38 Snay v. Cohoes Mem l Hosp., 110 A.D.2d 1021 (3d Dep t 1985)...30, 31, 37 Solomon R. Guggenheim Found. v. Lubell, 153 A.D.2d 143 (1st Dep t 1990)...22 State Bank of Satanata v. Gaskill, 1987 Kan. App. LEXIS 989 (Kan. Ct. App. May 7, 1987)...47 Structured Mortg. Trust v. Daiwa Fin. Corp., 2003 U.S. Dist. LEXIS 2677 (S.D.N.Y. Feb. 25, 2003)...27, 28 Trust for the Certificate Holders of the Merrill Lynch Mortg. Pass-Through Certificates Series 1999-C1 v. Love Funding Corp., 2005 U.S. Dist. LEXIS (S.D.N.Y. Oct. 11, 2005)...42, 43, 52 vii

9 U.S. Bank Nat l Ass n v. Countrywide Home Loans, Inc., 2013 WL (Sup. Ct. N.Y. Cnty. May 29, 2013)...40 Walnut Place LLC v. Countrywide Home Loans, Inc., 96 A.D.3d 684 (1st Dep t 2012)...32 Wells Fargo Bank, N.A. v. Bank of Am., N.A., 2013 U.S. Dist. LEXIS (S.D.N.Y. Mar. 28, 2013)...44, 45 Wells Fargo Bank, N.A. v. LaSalle Bank Nat l Ass n, 2011 U.S. Dist. LEXIS (W.D. Okla. Aug. 23, 2011)...44 Wiener v. Spahn, 60 A.D.3d 586 (1st Dep t 2009)...39 STATUTES CPLR 203(f)...passim CPLR 205(a)...36, 37, 38 CPLR 206(a)...20, 21 CPLR 213(2)...passim CPLR CPLR CPLR passim CPLR 5501(c)...10 OTHER AUTHORITIES 22 N.Y. Jur. 2d, CONTRACTS 255 (2013) WILLISTON ON CONTRACTS 79:22 (4th Ed. 2012)...13 BLACK S LAW DICTIONARY (5th ed. Abr. 1983)...47 viii

10 Press Release, Department of Justice, Office of Public Affairs, Residential Mortgage-Backed Securities Working Group Members Announce First Legal Action (Oct. 2, 2012) (available at Reuters, Private RMBS Take First Steps to U.S. Comeback (Mar. 22, 2013) (available at /03/22/abs-rmbs-us-idUSL1N0CE9HS )...17 WEINSTEIN, KORN & MILLER, N.Y. Civ. Prac. (2d ed. 1980)...21 ix

11 Plaintiff-Respondent ACE Securities Corp., Home Equity Loan Trust, Series 2006-SL2 (the Trust ), by HSBC Bank USA, National Association, solely in its capacity as trustee (the Trustee ) for the holders of Asset Backed Pass-Through Certificates, Series 2006-SL2 (the Certificates ), issued by the Trust pursuant to a Pooling and Servicing Agreement ( PSA ) and a Mortgage Loan Purchase Agreement ( MLPA, and with the PSA, the Agreements ), both of which closed on March 28, 2006, respectfully submits this brief in opposition to the appeal of Defendant-Appellant DB Structured Products, Inc. ( DBSP ) from the Decision and Order of the New York Supreme Court for the County of New York (Kornreich, J.) (the Supreme Court ), dated May 13, 2013 (the Order ) [R.9-20], which denied DBSP s motion to dismiss the Trustee s Complaint ( Complaint or Cmplt. ) pursuant to CPLR 3211(a)(1), (3), (5), (7) and (8). PRELIMINARY STATEMENT This action seeks to hold DBSP accountable for its unambiguous contractual obligation to repurchase, or otherwise make the Trust whole with respect to defective residential mortgage loans (the Defective Loans ) that DBSP sold to the Trust and that served as collateral for the Certificates issued by the Trust. DBSP s pervasive breaches of the Agreements and the poor quality of the Defective Loans have caused substantial losses to the Trust and its investors (the Certificateholders ) over $338 million to date.

12 Nonetheless, DBSP seeks to evade its most basic, unequivocal promises regarding the mortgage loans it sold to the Trust (the Mortgage Loans ). Among other things, DBSP: made numerous, specific representations and warranties to the Trust for the benefit of the Certificateholders regarding the characteristics and quality of the Mortgage Loans (the Mortgage Representations ); and agreed upon a party s notice to DBSP of a material breach of a Mortgage Representation and corresponding demand to cure such breach or, where cure proved impossible, to repurchase the Defective Loan to comply with its cure and repurchase obligations under the Agreements (the Repurchase Protocol ). Because the Certificateholders had no practical means or contractual rights to verify the quality and characteristics of the 8,800-plus Mortgage Loans sold to the Trust as only DBSP did DBSP s contractual promises regarding the Mortgage Loans were fundamental to, and, indeed embody the commercial bargain at the core of, the securitization. As set forth in the Complaint, investigations of over 1,600 of the Mortgage Loans have revealed that a stunningly high percentage 99 percent of the Mortgage Loans analyzed violate at least one Mortgage Representation and are Defective Loans. The Trustee repeatedly demanded that DBSP abide by its contractual obligation to cure or repurchase the Defective Loans, but DBSP has steadfastly, and unjustifiably, refused to do so. Accordingly, the Trust at first, derivatively through two of its Certificateholders, and now through the Trustee 2

13 brought suit to seek redress for the significant losses it suffered and will continue to suffer. The Supreme Court correctly denied DBSP s motion to dismiss pursuant to CPLR 3211, rejecting the two arguments raised by DBSP in its brief ( DBSP Br. ) on this appeal. 1 First, the Supreme Court rebuffed DBSP s contention that this action is time-barred, holding, instead, that DBSP s obligation to repurchase Defective Loans continues for the life of the Trust and the statute of limitations began to run when DBSP improperly rejected the Trustee s repurchase demand. [R.17] As the Supreme Court properly recognized, and as DBSP conceded below, under the Agreements, the Trustee is not entitled to sue until the Trustee demands that DBSP repurchase the Defective Loans, by written notice, and DBSP fails or refuses to so cure or repurchase within the contractually-prescribed time periods. 2 [R (emphasis in original).] (See infra at 11-28) Second, the Supreme Court properly rejected DBSP s hypothetical contention that its repurchase obligations are excused for certain ill-defined and unquantified categories of Mortgage Loans what it calls charged off, 1 DBSP chose not to appeal all of the Supreme Court s holdings, including the Supreme Court s ruling that the Trust had sufficiently alleged compliance with the Repurchase Protocol to bring a trust-wide action for all Defective Loans in the Trust. [R.17] 2 Moreover, as discussed below, the Trust s claims are timely for the additional and independent reason that they were filed within six years of the closing of the Agreements. (See infra at 30-38) 3

14 released, or liquidated Mortgage Loans because questions of fact clearly preclude dismissal on this ground. [R.18] Indeed, DBSP s tortured reading of the Agreements would absolve it of liability for the worst Mortgage Loans, i.e., the Mortgage Loans that were the first to default. Certificateholders would not have invested in the Trust if DBSP had not agreed to repurchase all Defective Loans, including, of course, the worst ones. Nothing in the Agreements suggests that the parties intended such an absurd result and New York courts have repeatedly rejected such self-serving arguments. Recognizing this fact, the Supreme Court found DBSP s argument [to be] unconvincing [because] [i]f DBSP were correct, it would be perversely incentivized to fill the Trust with junk mortgages that would expeditiously default so that they could be Released, Charged Off, or Liquidated before a repurchase claim is made. [Id.] (See infra at 38-55) In making these rulings, the Supreme Court affirmed that the commercial bargain underlying the Agreements is to shift the risk of loss for Defective Loans to DBSP. If DBSP did not intend for its obligation to be continuing, it could have contracted for a sunset provision (or time limitation) on its repurchase obligation. But it did not, and, in fact, there is no sunset provision (or time limitation) on DBSP repurchase obligation anywhere in the Agreements. Accordingly, the Supreme Court observed that DBSP s continuing repurchase obligation function[s] as insurance for the Trustee and was likely priced accordingly. 4

15 [R.15-17] Only now, after it became clear that DBSP filled the Trust with thousands of junk Mortgage Loans during the height of the housing bubble,, does DBSP argue that its repurchase obligation expired six years after the closing of the Agreements. DBSP s arguments would impermissibly rewrite and nullify not only the express provisions of, but also the fundamental commercial purpose underlying, the Agreements. As demonstrated in more detail below, DBSP s appeal is meritless, and the Order should be affirmed. COUNTER-STATEMENT OF QUESTIONS PRESENTED 1. Under CPLR 213(2) s six-year statute of limitations, does a cause of action for a party s failure to abide by its continuing obligation to cure and repurchase non-conforming mortgage loans accrue each time the party refuses to comply with that continuing obligation? The Supreme Court answered this question in the affirmative. 2. Is a CPLR 3211(a)(5) motion meritless where a summons with notice was filed within six years of the closing of the relevant agreements, the plaintiffs affirmatively alleged that they had standing to file the summons with notice, and any potential standing issues were resolved upon the filing and service of the complaint? The Supreme Court did not reach this issue. 5

16 3. Can a defendant s unsupported factual contentions that certain categories of mortgage loans are purportedly not available for repurchase be resolved on a CPLR 3211 motion, where the complaint contains no allegations about the categories or status of any such mortgage loans, and the record before the court fails to conclusively support defendant s contentions? The Supreme Court answered this question in the negative. 4. Is a seller excused from its contractual obligation to repurchase certain categories of mortgage loans because such mortgage loans are purportedly not available for repurchase even though the contracts expressly shift the risk of loss for all non-conforming mortgage loans to the seller? The Supreme Court answered this question in the negative. COUNTER-STATEMENT OF THE CASE I. Factual Background This transaction is one of a number of residential mortgage-backed securitizations ( RMBS ) that the country s largest banks, including DBSP, conducted during the run-up to the financial crisis in ever-increasing and incredibly high volumes, generating enormous revenue for the banks. Indeed, what is now apparent, based on the breaches alleged in the Complaint, is that DBSP in a race to take advantage of the housing bubble it helped to perpetuate sought to generate profits as fast as possible by putting quantity ahead of quality in 6

17 packaging and selling the Mortgage Loans. [R.33, (Cmplt. 3-4, 28-34)] DBSP s reckless and improper purchase, pooling, and securitization of the Mortgage Loans accounts for the poor performance of the Certificates, a phenomenon illustrated by numerous governmental investigations, including that of the RMBS working group President Obama established in the Department of Justice. See Press Release, Department of Justice, Office of Public Affairs, Residential Mortgage-Backed Securities Working Group Members Announce First Legal Action (Oct. 2, 2012) (available at Here, DBSP aggregated a pool of 8,815 Mortgage Loans and transferred those Mortgage Loans to the Trust using its affiliate, ACE Securities Corp. ( ACE Securities ), as an intermediary. The securitization closed on March 28, 2006, and the Trust issued the Certificates. Another DBSP affiliate sold the Certificates to investors, generating over $500 million in proceeds, which were then passed on to DBSP. [R.33 (Cmplt. 3-4)] DBSP purchased the Mortgage Loans from third-party originators. During origination, it was incumbent upon the third-party originators to evaluate the creditworthiness of borrowers and the value of the homes securing the Mortgage Loans. In addition, DBSP conducted independent due diligence not only on the Mortgage Loans, but also on these third-party originators. However, as uncovered 7

18 by the Financial Crisis Inquiry Commission, DBSP routinely securitized almost half of the loans that were rejected by its due diligence firm, Clayton Holdings, Inc. Thus, DBSP must have discovered breaches of the Mortgage Representations in this securitization before and through the closing of the Agreements. [R.32, (Cmplt. 2, 34-37)] Despite this knowledge, DBSP still chose to guarantee that the Mortgage Loans were underwritten in accordance with the related originator s underwriting guidelines. [R.38, 296 (Cmplt. 23; MLPA 6(xxiii))] In particular, because no Certificateholder was able to conduct loan-by-loan due diligence on the thousands of Mortgage Loans that DBSP sold to the Trust, DBSP guaranteed the quality of the Mortgage Loans by, among other things: (a) making specific Mortgage Representations regarding the characteristics and quality of each Mortgage Loan, and (b) accepting the risk of Defective Loans in the Trust by agreeing, upon demand, to cure any breach of the Mortgage Representations or, if cure proved impossible, to repurchase any Defective Loan. This Repurchase Protocol is found in Sections 2.03(a) of the PSA and 7(a) of the MLPA. [R.39-40, , 300 (Cmplt )] Had DBSP not warranted that the Mortgage Loans met certain quality standards and accepted the risk of loss in the event they did not, this securitization would not have been consummated as 8

19 investors were unable to independently evaluate the quality of the collateral. [R.33-34, (Cmplt. 6, 21-25)] As noted, an ongoing forensic review of over 1,600 of the Trust s Mortgage Loans has determined that over 99 percent of the Mortgage Loans analyzed violated at least one Mortgage Representation. [R.34, (Cmplt. 8, 28-30)] Pursuant to the Repurchase Protocol, the Trustee sent notices to DBSP detailing and itemizing these breaches, and demanding that DBSP cure the breaches or repurchase the Defective Loans, beginning on February 8, 2012 (the Breach Notices ). [R.50-51, , (Cmplt )] To date, DBSP has refused to cure or repurchase a single Mortgage Loan. [R (Cmplt )] II. Proceedings Below This action was commenced on March 28, 2012 by means of a summons with notice ( SWN ) filed by two Certificateholders on behalf of the Trust, which was then served on DBSP on July 26, [R.24-27] DBSP demanded the Complaint on August 24, 2012, and the Complaint which substituted the Trustee for the two Certificateholders was timely filed and served on September 13, [R.30-53] On November 30, 2012, DBSP filed a motion to dismiss the Complaint pursuant to CPLR 3211(a)(1), (3), (5), (7) and (8). [R ] The Trust filed its 9

20 opposition to the motion on February 8, After oral argument, held on April 30, 2013, the Supreme Court issued the Order on May 13, 2013, denying DBSP s motion to dismiss in its entirety. [R.9-20] In the Order, the Supreme Court held, among other things, that: (a) the Trust s claims were timely because DBSP s contractual obligation to repurchase Defective Loans was a continuing obligation under New York law and, thus, CPLR 213(2) s six-year statute of limitations ran from each of DBSP s refusals to repurchase Defective Loans; and (b) DBSP s arguments that, hypothetically, certain Defective Loans were not subject to repurchase under the provisions of the Repurchase Protocol (i) raised issues of material fact that could not be resolved on its CPLR 3211 motion, and (ii) contradicted the express and implied terms of the Agreements. [R.13-19] STANDARD OF REVIEW On this appeal, this Court reviews questions of law and fact. CPLR 5501(c). On a motion to dismiss pursuant to CPLR 3211, the [complaint] is to be afforded a liberal construction. [The court] accept[s] the facts as alleged in the complaint as true, accord[s] plaintiffs the benefit of every possible favorable inference, and determine[s] only whether the facts as alleged fit within any cognizable legal theory. Leon v. Martinez, 84 N.Y.2d 83, (1994) (citations omitted). To plead a cause of action for breach of contract, the claimant must state four elements: (1) the existence of a valid contract; (2) non-performance by the 10

21 defendant; (3) performance by the plaintiff; and (4) damage to the plaintiff as a result of defendant s non-performance. See JP Morgan Chase v. J.H. Elec. of N.Y., Inc., 69 A.D.3d 802, 803 (2d Dep t 2010). On a motion to dismiss a cause of action pursuant to CPLR 3211(a)(5) on the ground that it is barred by the statute of limitations, a defendant bears the initial burden of establishing, prima facie, that the time in which to sue has expired. In considering the motion, a court must take the allegations in the complaint as true and resolve all inferences in favor of the plaintiff. Further, plaintiff s submissions in response to the motion must be given their most favorable intendment. Benn v. Benn, 82 A.D.3d 548, 548 (1st Dep t 2011) (quotations and citations omitted). ARGUMENT I. The Supreme Court Correctly Held That The Trust s Claims Are Not Time Barred As the Supreme Court correctly held, under New York law, the Trust s claims for DBSP s breach of its repurchase obligation accrued each time DBSP refused the Trustee s demand to cure or repurchase Defective Loans and not when DBSP made the Mortgage Representations, i.e., at the closing of the Agreements. [R.13-17] 3 In so holding, the Supreme Court recognized that the Agreements provide a contractual remedy for material and adverse breaches of the Mortgage 3 The Trust s claims are timely for the additional and independent reason that they were filed within six years of the closing of the Agreements. (See infra at 30-38) 11

22 Representations, i.e., the Repurchase Protocol, and the only contractual wrong that DBSP [] commit[ted] [was its] failure to abide by [the Repurchase Protocol]. [R.15 (emphasis in original).] Thus, the Trust could only sue for DBSP s contractual wrong and its cause of action against DBSP only accrued when DBSP refused to perform its repurchase obligations under the Repurchase Protocol. A. DBSP Breached The Agreements, And The Trust s Cause Of Action Accrued, When DBSP Refused To Abide By Its Contractual Repurchase Obligation As set forth in the Repurchase Protocol, whenever a party including DBSP, as Sponsor; ACE Securities, as Purchaser; or the Trustee, as the Purchaser s assignee discovers and/or receives notice of a breach that materially and adversely affects the value of a Mortgage Loan or the interests of the Certificateholders therein, the discovering party, if not DBSP, must provide prompt notice to DBSP. Within 60 days of its own discovery or receipt of notice of such breach, DBSP must then cure the breach or, if cure proves impossible, within 90 days of its own discovery or receipt of notice, repurchase the Defective Loan. 4 [R.15, , 300 (PSA 2.03(a); MLPA 7(a))] This is the risk-shifting 4 For two years after the closing of the PSA, DBSP could also substitute a new, conforming Mortgage Loan for the Defective Loan within 90 days of notice. [R (PSA 2.03(a)-(b))] 12

23 commercial bargain at the heart of the Agreements that provides a continuing obligation on DBSP to repurchase Defective Loans for the life of the Trust. 1. DBSP s Repurchase Obligation Is A Continuing Obligation That Exists For The Life Of The Trust Accordingly, under New York law, DBSP s agreement to cure or repurchase Defective Loans pursuant to the Repurchase Protocol is a continuing obligation. While the Trust s breach of contract claims are subject to CPLR 213(2) s sixyear statute of limitations, where a contract provides for continuing performance over a period of time, each breach may begin the running of the statute anew such that accrual occurs continuously and plaintiffs may assert claims for damages occurring up to six years prior to filing of the suit. Airco Alloys Div. v. Niagara Mohawk Power Corp., 76 A.D.2d 68, 80 (4th Dep t 1980) (citing Bulova Watch Co. v. Celotex Corp. ( Bulova ), 46 N.Y.2d 606 (1979)); N.Y. Cent. Mut. Fire Ins. Co. v. Glider Oil Co., 90 A.D.3d 1638, 1642 (4th Dep t 2011) ( Where, as here, a contract provides for a recurring obligation, a claim for damages accrues each time the contract is allegedly breached ); see also Beller v. William Penn Life Ins. Co. of N.Y., 8 A.D.3d 310, 314 (2d Dep t 2004) (same); Guilbert v. Gardner, 480 F.3d 140, 150 (2d Cir. 2007) (same); 31 WILLISTON ON CONTRACTS 79:22 (4th Ed. 2012) ( [W]here there is an agreement to repair or to replace goods, that agreement is not breached until there has been a refusal or failure to repair ). 13

24 In Bulova, the Court of Appeals considered the timeliness of a suit brought to recover damages for a roofing materials supplier s failure to live up to its express promise to repair its so-called bonded roof for a period of 20 years from the date of sale. 46 N.Y.2d at 608. The defendant in Bulova not only made representations regarding the quality of the roofing materials it sold to plaintiff, but also promised to undertake any necessary repairs to the roof, as claims arose, for a period of 20 years. Id. at With respect to plaintiff s claims for repair, the Bulova court held that a cause of action accrues upon each breach of that undertaking which occurs within the 20-year period and that the Statute of Limitations runs after six years from the date when the particular breach for which any such suit is brought has taken place. Id. at 608. The Bulova court found that defendant s agreement to repair the roof was a continuing obligation because defendant did not merely guarantee the condition of the roofing materials, but also agreed to perform a service, i.e., repair any defects in the roofing materials. Id. at DBSP strains to distinguish Bulova by claiming that the promise to repair in that action was in a separate contract from the contract containing the defendant s warranties regarding its roofing materials. (DBSP Br. at 18-19) This distinction is meaningless, however, because such issues of form have no relevance where the contracts at issue, like here, are integrated agreements. See Nolfi Masonry Corp. v. Lasker-Goldman Corp., 160 A.D.2d 186, 187 (1st Dep t 1990) ( [A] binding agreement may be assembled from more than one writing, even if all are not signed by the party against whom enforcement is sought ); 22 N.Y. Jur. 2d, CONTRACTS 255 (2013) ( Where several instruments constitute part of the 14

25 Here, DBSP undertook the same dual obligation: it not only guaranteed the condition of the Mortgage Loans through the Mortgage Representations, it also agreed to perform a service, i.e., to cure or repurchase Defective Loans pursuant to the Repurchase Protocol. Accordingly, the accrual of the limitations period here should be afforded the same treatment as that applied by the Court of Appeals in Bulova. Not surprisingly, the reasoning in Bulova has been applied in the RMBS context. See Lehman Bros. Holdings, Inc. v. Nat l Bank of Ark., 875 F. Supp. 2d 911, (E.D. Ark. 2012), (because an RMBS plaintiff could not have sued on [Defendant s] independent breach [of its repurchase obligation] before the plaintiff demanded repurchase of the loan, the statute of limitations for a claim alleging a loan seller s breach of its repurchase obligation begins to run, at the earliest, from when the plaintiff demanded repurchase ) (applying New York law; emphasis added). same transaction, they must be interpreted together ). Moreover, Sections 2.03(a) of the PSA and 7(a) of the MLPA which set forth the Repurchase Protocol are themselves separate agreements from the Mortgage Representations in Section 6 of the MLPA. DBSP also attempts to distinguish Bulova because the Court of Appeals dismissed the plaintiff s breach of implied warranty claim as untimely, holding that such claim arose at the time of the sale of the roofing materials. (DBSP Br. at 19) But that point reinforces the Trustee s central argument on this appeal: the Trust is not suing for breach of an implied or express warranty; instead, it is suing for DBSP s breach of its continuing repurchase obligation pursuant to the Repurchase Protocol. 15

26 The express language of several provisions of the Agreements confirms that DBSP s repurchase obligation is meant to continue for the life of the Trust. For example, Section 4.02 of the PSA states that, [f]or as long as [the Trust] shall exist, the Trustee [may] permit the sale of the Mortgage Loans [if] such sale is as a result of a repurchase of the Mortgage Loans pursuant to this Agreement. [R.155 (emphasis added).] Further, the Certificates, attached as exhibits to the PSA, explicitly provide, without limitation, that [t]he obligations created by the Agreement and the Trust Fund... shall terminate upon payment to the Certificateholders of all amounts [owed] i.e., following the Trust s termination. [R (PSA, Exs. A-1-A-6)] To contend, as DBSP does, that DBSP s repurchase obligation expires within six years of the closing of the Agreements would impermissibly nullify these express contractual provisions. See, e.g., Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 60 A.D.3d 61, 66 (1st Dep t 2008) ( A court may not, in the guise of interpreting a contract, add or excise terms or distort the meaning of those used. ) In addition, DBSP s purported six-year sunset provision (or time limitation) on its repurchase obligation is found neither in the thirteen separate paragraphs that set forth the steps of, and obligations created by, the Repurchase Protocol nor anywhere else in the Agreements. [R , 300 (PSA 2.03, MLPA 7)] As the Supreme Court aptly recognized, if the parties had desired any such limitation 16

27 in the Agreements, which include specific deadlines for the demand and cure period and involve loans with a 30 year term, the Agreements could have stated that repurchase demands can only be made within six years of the PSA s execution. [R.16] See also Lippe v. Genlyte Grp., Inc., 2002 U.S. Dist. LEXIS 6024, at *10-11 (S.D.N.Y. Apr. 8, 2002) (where Section 11 of the agreement required defendant to deliver documents upon plaintiff s request and there was no termination date by which [such] obligations... would expire, the [defendant s] continuing failure to comply with 11 constitutes a separate, continuing breach ). In fact, most active sponsors of RMBS recognize that repurchase obligations are designed to run for the lifetime of the trust. See, e.g., Citigroup Inc., Annual Report for fiscal year ended Dec. 31, 2010 (Form 10-K), at 90, 145 (filed Feb. 25, 2011) ( Citi s representations and warranties are generally not subject to stated limits in amount or time of coverage ); Bank of America Corp., Annual Report for fiscal year ended Dec. 31, 2009 (Form 10-K), at 144 (filed Feb. 26, 2010) ( [Bank of America s] representations and warranties are generally not subject to stated limits and extend over the life of the loan ); Wells Fargo & Co., Quarterly Report for the period ended Sept. 30, 2010 (Form 10-Q), at 38 (filed Nov. 5, 2010) ( Investors may demand repurchase at any time ) (available at sec.gov); Reuters, Private RMBS Take First Steps to U.S. Comeback (Mar. 22, 2013) (available at 17

28 2013/03/22/abs-rmbs-us-idUSL1N0CE9HS ) ( While older R&W provisions and repurchase obligations were for the life of the loan, some recent RMBS proposals contain sunset provisions that free lenders from repurchase obligations after less than 36 months ). Also, as the Supreme Court recognized, DBSP s attempt to place a six-year time limitation on its repurchase obligation: (a) is squarely at odds with Section 7(a) of the MLPA, which sets forth that the Trustee s right to enforce DBSP s repurchase obligations shall not be impaired by the Trustee s failure to review loan files or conduct any due diligence on the veracity of the Representations, because (b) it would imply a duty on the Trustee to conduct constant due diligence on the veracity of the Representations to ensure that lies are ferreted out before the [purported] time to make a repurchase demand expires. [R.15-16; see also R.292 (MLPA 4 (e) ( The fact that the Purchaser or any person has conducted or has failed to conduct any partial or complete examination of the Mortgage Files shall not affect the rights of the Purchaser or [the Trust] to demand repurchase or other relief as provided herein or under the [PSA] ).)] In sum, the Repurchase Protocol, in conjunction with Sections 4(e) and 7(a) of the MLPA, shifts the risk of Defective Loans on DBSP for the life of the Trust. In fact, the Complaint alleges that the price of the Certificates and indeed, the securitization itself depended on DBSP s continuing obligation to repurchase all 18

29 Defective Loans. [R.33-34, (Cmplt. 5-7, 26-27)] To read the Agreements as placing a six-year time limitation on DBSP s repurchase obligation utterly belies the parties relationship and turns the PSA on its head. [R.15-16] See also Innophos, Inc. v. Rhodia, S.A., 10 N.Y.3d 25, 29 (2008) ( The fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties intent and the best evidence of that intent is what they say in their writing. ) 2. DBSP Concedes That The Trust s Cause Of Action Accrued When DBSP Rejected The Trustee s Demand For Cure Or Repurchase Accordingly, as DBSP conceded in its memorandum of law below ( DBSP Mem. ), 6 DBSP only breaches its continuing repurchase obligation and the Trust s cause of action only accrues when DBSP fails or refuses to repurchase Defective Loans upon the Trustee s demand: The Repurchase Protocol sets forth a specific process by which DBSP s repurchase obligation may be enforced. First, the Trustee must provide DBSP with notice that specific Mortgage Loans materially breach specific representations and warranties. Next, the Trustee must provide DBSP with 60 days to cure or 90 days to repurchase the Mortgage Loans at issue. Once this period has expired without the breaches being cured or the loans being repurchased, the Trustee can bring suit to enforce DBSP s obligation to repurchase such loans. 6 Although DBSP s memorandum of law in support of its motion to dismiss is not part of the record on this appeal, the Trustee will provide the Court with a copy should the Court so request. 19

30 (DBSP Mem. at 12 (emphasis added).) [See also R (comments of DBSP counsel at oral argument: the whole purpose of the repurchase protocol is for the trustee to give us notice of 90 days to effect a repurchase, and only at that point is the trustee authorized to seek to enforce the repurchase protocol ).] Notably, DBSP made these concessions below as part of its argument that certain of the Trust s claims were not ripe. (DBSP Mem. at 12-13) It is apparent that DBSP dropped this argument on appeal because of the blatant contradiction in its contentions: claims cannot be both time barred and not ripe. Consistent with DBSP s concession, the Supreme Court correctly held, as part of its discussion of CPLR 206(a), 7 that: (a) (b) (c) the three steps of the Repurchase Protocol must be followed before the Trustee can sue DBSP for breach of its repurchase obligations; [i]t, therefore, follows that DBSP does not breach the PSA, and the claim for breach does not accrue until (i) the Trustee demands cure or repurchase (ii) the cure period lapses, and (iii) DBSP fails to timely cure or repurchase a loan; and thus, [t]he statute of limitations began to run when DBSP improperly rejected the Trustee s repurchase demand. [R.15-17] 7 Section 206(a) provides that where a demand is necessary to entitle a person to commence an action, the time within which the action must be commenced shall be computed from the time when the right to make the demand is complete... 20

31 The Supreme Court s ruling conforms with well-established New York law, which holds that where a [plaintiff s] demand and [a defendant s] refusal are requisite elements of the cause of action, that demand requirement is substantive and a plaintiff s cause of action accrues only after such demand and refusal. Kunstsammlungen zu Weimar v. Elicofon, 678 F.2d 1150, 1161 (2d Cir. 1982) (citing cases). 8 Here, the Repurchase Protocol prevents the Trust from suing DBSP for breaches of the Mortgage Representations in isolation a fact that DBSP affirmatively argued below. (See DBSP Mem. at 12-13) Instead, pursuant to the Repurchase Protocol, when the Trustee learns of Defective Loans, the Trustee must provide prompt notice to DBSP, demand that DBSP cure or repurchase the Defective Loans, and allow DBSP the prescribed periods to so cure or repurchase. Only if DBSP fails to cure or repurchase within the prescribed periods, does DBSP breach the Agreements. [See R.15-17] Indeed, if DBSP had repurchased the Defective Loans upon the Trustee s demand, there would be no breach of contract and no injury to the Trust. See Continental Casualty Co. v. 8 On the other hand, where the demand is merely procedural, that is, where demand and refusal are not requisite elements of the cause of action and the defendant s actionable conduct was complete prior to demand, 206(a) of the N.Y.C.P.L.R. governs and the limitation period begins to run when the right to make the demand is complete. Kunstsammlungen, 678 F.2d at 1161 (quoting Ganley v. Troy City Nat l Bank, 98 N.Y. 487, 494 (1885)). Under these principles, 206(a) does not apply to substantive demands, and in practice 206(a) s actual application has been extremely limited. Id. (citing WEINSTEIN, KORN & MILLER, N.Y. Civ. Prac at (2d ed. 1980)). 21

32 Stronghold Ins. Co., 866 F. Supp. 143, 147 (S.D.N.Y. 1994) ( [D]emand and refusal are essential elements of the cause of action because there would otherwise be no breach of contract ), aff d, 77 F.3d 16 (2d Cir. 1996). As a result, the Trustee s demand and DBSP s refusal are essential elements of the Trust s cause of action and thus, under New York law, the demand provisions of the Repurchase Protocol are substantive and the Trust s cause of action did not accrue until DBSP s refused to abide by its repurchase obligation. See John J. Kassner & Co. v. City of N.Y., 46 N.Y.2d 544, 550 (1979) ( The breach, if any, occurred [when] the comptroller refused to pay the full amount demanded and allegedly due on the contract, and plaintiff s cause of action only accrued at that point); Julias A. Nasso & Assocs. Concrete Corp. v. Trataros Constr., Inc., 79 A.D.3d 471, 471 (1st Dep t 2010) ( The breach of contract claims therefore did not accrue until the payment claims were finally processed and defendants failed to pay the liquidated amounts ). 9 9 See also Solomon R. Guggenheim Found. v. Lubell, 153 A.D.2d 143, 147 (1st Dep t 1990) (Until demand is made and refused, possession of the stolen property by the good-faith purchaser for value is not considered wrongful and [t]hus, the requirement that a demand be made upon a good-faith purchaser is a substantive element of the cause of action. In other words, absent a demand there is no cause of action for replevin against a good-faith purchaser, and absent a cause of action the statute cannot begin to run ), aff d, 77 N.Y.2d 311 (1991); Kunstsammlungen zu Weimar v. Elicofon, 536 F. Supp. 829, 848 (S.D.N.Y. 1981) ( The legal principle underlying the rule that the demand and refusal are substantive elements of the cause of action against the bona fide purchaser is that the bona fide purchaser s possession is initially lawful, and only become unlawful 22

33 [R.16] Moreover, as the Supreme Court explained: [T]he instant case bears a resemblance to reinsurance, where the insurance company is often contractually obligated to make a demand on its reinsurer when it pays out a claim to the underlying insured. The United States Court of Appeals for the Second Circuit, applying New York law, has held that a reinsurer does not breach its obligations to the insurance company until the reinsurer rejects the insurance company s demand. See Continental Casualty Co. v. Stronghold Ins. Co. ( Continental ), 77 F.3d 16 (2d Cir. 1996). Though the reinsurer s contractual liability stems from the insurance company s claim payment to the insured, the reinsurers were not in breach[] of their contract to indemnify until they rejected the demand. Id. at 21. In Continental, the Second Circuit found that the demand, in the form of notice to reinsurers of actual losses on the underlying insurance policies, was substantive under New York law and an essential element of Continental s indemnity claims because: (a) Continental s actual losses were not due and payable [from defendant reinsurers] until a reasonable period of time elapsed after it gave notice of them, and (b) the reinsurers were not in breach of their contract to indemnify until they rejected the demand (or until a reasonable time for paying the losses elapsed). 77 F.3d at 21. Accordingly, Continental s causes of action accrued when the [defendant] reinsurers refused to pay or a reasonable time for payment had passed and not before. Id. once he has refused, upon demand, to return the property to the true owner ), aff d, 678 F.2d 1150 (2d Cir. 1982). 23

34 Similarly, here, the Trustee s demand in the form of prompt written notice to DBSP of Defective Loans was an essential element of the Trust s breach of contract claim because the Trust s actual losses for the Defective Loans were not due and payable until the cure and repurchase periods expired, 10 and DBSP was not in breach of its obligation to repurchase until it rejected the Trustee s demand. Id.; see also Craven v. Rigas, 71 A.D.3d 1220, 1222 (3d Dep t 2010) (where the note permit[ted] plaintiff to declare the balance immediately due and payable only upon the expiration of a ten day period after plaintiff provided notice of default, plaintiff s cause of action did not accrue until that time); Russack v. Weinstein, 291 A.D.2d 439, 441 (2d Dep t 2002) (since excess advance was only due upon expiration of a 60 day period after plaintiff s demand, the statute of limitations did not begin to run until [those] 60 days had passed) That the statute of limitations does not begin to run until the cure and repurchase periods have lapsed is in line with well-settled New York law that a contract is not breached until the time set for performance has expired. Rachmani Corp. v. 9 E. 9th St. Apt. Corp., 211 A.D.2d 262, 265 (1st Dep t 1995); Empire 33rd LLC v. Forward Ass n, 87 A.D.3d 447, 449 (1st Dep t 2011) (same). 11 In addition, where, like here, an agreement provides a party with the right to demand performance at any time during the life of the contract, the statute of limitations runs from demand and refusal. See Franconia Assocs. v. United States, 536 U.S. 129, 147 n.10 (2002) (where contracts granted borrowers the right to prepay the loan at any time, plaintiffs claims ran from the Government s refusal to accept prepayment); Lopez v. Highmount Assocs., 101 A.D.2d 618, 619 (3d Dep t 1984) (where no time was fixed for an agreement to sell real estate, the six-year statute of limitations did not begin to run until one of the parties to the agreement made a specific demand for performance); Rossi v. Oristian, 50 A.D.2d 44, 46 (4th 24

35 B. DBSP s Reliance On Hahn Is Misplaced Nonetheless, DBSP argues that the Trustee s demand pursuant to the Repurchase Protocol is a procedural demand, and thus, has no impact on the accrual of the Trust s claim, citing the Court of Appeals decision in Hahn Auto. Warehouse, Inc. v. Am. Zurich Ins. Co. ( Hahn ), 18 N.Y.3d 765 (2012). (DBSP Br. at 26) DBSP is wrong as Hahn is completely consistent with both the Order and the Trust s position on this appeal. In Hahn, the defendant ( Zurich ) had the right to demand various reconciliation payments from the plaintiff ( Hahn ) under the terms of several integrated insurance contracts (the Insurance Agreements ). 18 N.Y.3d at Accordingly, Zurich asserted counterclaims, alleging that Hahn s refusal to pay certain invoices seeking such reconciliation payments breached the Insurance Agreements. Id. at 769. Hahn moved for summary judgment, arguing that many of Zurich s counterclaims were time-barred under CPLR 213(2). Id. The Supreme Court granted Hahn s summary judgment motion and the Appellate Division, Fourth Department, affirmed. Id. at Dep t 1975) (in an action based on a stock option agreement, which provided that the option could be exercised at any time, the statute of limitations ran from when plaintiff demanded the stock and defendant refused); Lippe, 2002 U.S. Dist. LEXIS 6024, at *10-11 (where agreement permitted plaintiff to demand documents from defendant after closing, plaintiff s breach of contract claim accrued upon plaintiff s demand and defendant s failure to deliver the documents demanded). 25

36 Before the Court of Appeals, Zurich acknowledge[d] that it had the right under its contracts to bill Hahn years earlier for many of the sums reflected in the April 2005, March 2, 2006 and March 27, 2006 invoices in some instances more than a decade earlier but failed to do so through inadvertence. Id. at 771. Nonetheless, Zurich argued that since the Insurance Agreements purportedly required Zurich to first demand payment, CPLR 213(2) s six-year statute of limitations did not begin to run until those demands were made. Id. at 770. The Court of Appeals rejected this argument, holding that the statute of limitations on Zurich s counterclaims began to run when it acquired the right to demand payment of the various amounts owed under the policies because the Insurance Agreements did not condition its right to payment on its own demand [and] the contracts contain specific references to the applicable time periods[, annually in most instances,] when Zurich was entitled to calculate adjustments and bill Hahn for the amounts owed. Id. at (citations omitted). In other words, pursuant to the Insurance Agreements, Hahn owed Zurich any reconciliation payments upon Zurich s annual calculations. Id. Thus, Zurich s purported written demand, by invoice, was not an element of Zurich s breach of 26