New York Supreme Court

Transcription

1 New York County Clerk s Index No /13 To Be Argued By: DARRELL S. CAFASSO d New York Supreme Court APPELLATE DIVISION FIRST DEPARTMENT THE BANK OF NEW YORK MELLON, solely in its capacity as Securities Administrator for J.P. Morgan Mortgage Acquisition Trust, Series 2006-WMC2, Plaintiff-Appellant, against WMC MORTGAGE, LLC, as successor-by-merger to WMC Mortgage Corp., J.P. MORGAN MORTGAGE ACQUISITION CORPORATION and JPMORGAN CHASE BANK, N.A., Defendants-Respondents. BRIEF FOR DEFENDANTS-RESPONDENTS J.P. MORGAN MORTGAGE ACQUISITION CORPORATION AND JPMORGAN CHASE BANK, N.A. ROBERT A. SACKS DARRELL S. CAFASSO MATTHEW L. LIPPERT SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York (212) sacksr@sullcrom.com cafassod@sullcrom.com lippertm@sullcrom.com Attorneys for Defendants-Respondents J.P. Morgan Mortgage Acquisition Corporation and JPMorgan Chase Bank, N.A. REPRODUCED ON RECYCLED PAPER

2 TABLE OF CONTENTS Page PRELIMINARY STATEMENT... 1 COUNTER-STATEMENT OF THE QUESTIONS PRESENTED... 6 COUNTER-STATEMENT OF THE NATURE OF THE CASE... 7 A. Overview of the Transaction... 7 B. Repurchase Obligations Under the Governing Documents... 8 C. Relevant Procedural History D. The Motions to Dismiss STANDARD ON THIS APPEAL ARGUMENT I. THE MOTION COURT CORRECTLY REJECTED BONY S ARGUMENT THAT THE ACCRUAL PROVISION DELAYS THE RUNNING OF THE STATUTE OF LIMITATIONS II. THIS COURT SHOULD AFFIRM THE DISMISSAL OF BONY S BACKSTOP CLAIMS AGAINST JPMMAC A. The Backstop Claims Are Untimely The Accrual Provision Does Not Create a Substantive Condition Precedent Labelling the Backstop Obligation a Guaranty Does Not Change the Statute of Limitations Accrual Analysis B. Even If Timely, the Backstop Claims Are Barred by the Plain Terms of the PSA... 23

3 III. THIS COURT SHOULD AFFIRM THE DISMISSAL OF BONY s FAILURE-TO-NOTIFY CLAIMS AGAINST JPMC BANK A. Under ACE, There Can Be Only One Breach of Contract Arising From Alleged Warranty Breaches, and It Occurs at Closing B. BONY s Failure-to-Notify Claims Are Independently Barred by the PSA s Sole Remedy Provision C. BONY s Failure-to-Notify Claims Are Inadequately Pled CONCLUSION ii-

4 TABLE OF AUTHORITIES Page(s) Cases ACE Sec. Corp. v. DB Structured Prods., Inc., 112 A.D.3d 522 (1st Dep t 2013) ACE Sec. Corp. v. DB Structured Prods., Inc., 25 N.Y.3d 581 (2015)...passim Am. Dental Co-op., Inc. v. Attorney Gen. of State of N.Y., 127 A.D.2d 274 (1st Dep t 1987) Am. Trading Co. v. Fish, 42 N.Y.2d 20 (1977)... 24, 25 Bishop v. Maurer, 33 A.D.3d 497 (1st Dep t 2006) Brick v. Cohn-Hall-Marx Co., 276 N.Y. 259 (1937) Deutsche Bank Nat l Trust Co. v. Flagstar Capital Mkts. Corp., No /2013, 2015 WL (Sup. Ct. N.Y. Cty. Apr. 13, 2015) Deutsche Bank Nat l Trust Co. v. Flagstar Capital Mkts. Corp., 36 N.Y.S.3d 135 (1st Dep t 2016)... 3, 16, 18 Deutsche Bank Nat l Trust Co. v. Quicken Loans Inc., No. 13 Civ. 6482, 2014 WL (S.D.N.Y. Aug. 4, 2014) Deutsche Bank Nat l Trust Co. v. Quicken Loans, Inc., 810 F.3d 861 (2d Cir. 2015)...passim Edelman v. Emigrant Bank Fine Art Fin., LLC, 89 A.D.3d 632 (1st Dep t 2011) Entm t Partners Grp., Inc. v. Davis, 198 A.D.2d 63 (1st Dep t 1993) iii-

5 Goldstein v. Bass, 138 A.D.3d 556 (1st Dep t 2016) Gordon v. Dino De Laurentiis Corp., 141 A.D.2d 435 (1st Dep t 1988) Greenwich Capital Fin. Prods., Inc. v. Negrin, 74 A.D.3d 413 (1st Dep t 2010) Hahn Auto. Warehouse, Inc. v. Am. Zurich Ins. Co., 18 N.Y.3d 765 (2012) Hoosac Valley Farmers Exch., Inc. v. AG Assets, Inc., 168 A.D.2d 822, 823 (3d Dep t 1990) In re Lipper Holdings, 1 A.D.3d 170 (1st Dep t 2003) Law Debenture Trust Co. of N.Y. v. DLJ Mortg. Capital, Inc., No /2013, 2015 WL (Sup. Ct. N.Y. Cty. Apr. 8, 2015)... 17, 25 Lehman XS Trust, Series 2006-GP2 v. GreenPoint Mortg. Funding, Inc., No. 12 Civ. 7935, 2014 WL (S.D.N.Y. Mar. 31, 2014) Lehman XS Trust, Series N v. GreenPoint Mortg. Funding, Inc., 991 F. Supp. 2d 472 (S.D.N.Y. 2014) Lehman XS Trust, Series N v. GreenPoint Mortg. Funding, Inc., 643 F. App x 14 (2d Cir. 2016) Leon v. Martinez, 84 N.Y.2d 83 (1994) Mehmet v. Add2net, Inc., 66 A.D.3d 437 (1st Dep t 2009) Morgan Stanley Mortg. Loan Trust ARX v. Morgan Stanley Mortg. Capital Holdings, LLC, 36 N.Y.S.3d 458 (1st Dep t 2016) iv-

6 Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc., 133 A.D.3d 96 (1st Dep t 2015)... 30, 31 Novak & Co., Inc. v. Travelers Indem. Co., 56 A.D.2d 418 (2d Dep t 1977)... 6, SACO I Trust v. EMC Mortgage LLC, No /2012, 2014 WL (Sup. Ct. N.Y. Cty. May 29, 2014) State v. Peerless Ins. Co., 117 A.D.2d 370 (3d Dep t 1986) Syncora Guar. Inc. v. J.P. Morgan Sec. LLC, 110 A.D.3d 87 (1st Dep t 2013) TIAA Global Invs., LLC v. One Astoria Square LLC, 127 A.D.3d 75 (1st Dep t 2015) U.S. Bank Nat l Ass n v. Dexia Real Estate Capital Mkts., 643 F. App x 48 (2d Cir. 2016) U.S. Bank Nat l Ass n v. GreenPoint Mortg. Funding, Inc., No /2013, 2015 WL (Sup. Ct. N.Y. Cty. Mar. 3, 2015) Wells Fargo Bank, N.A. v. J.P. Morgan Chase Bank, N.A., No. 12 Civ. 6168, 2014 WL (S.D.N.Y. Mar. 27, 2014) Wells Fargo Bank, N.A. v. J.P. Morgan Chase Bank, N.A., 643 F. App x 44 (2d Cir. 2016) Statutes and Rules CPLR CPLR , 15 CPLR v-

7 Defendants-Respondents J.P. Morgan Mortgage Acquisition Corp. ( JPMMAC ) and JPMorgan Chase Bank, N.A. ( JPMC Bank ) (together, the JPMorgan Defendants ) respectfully submit this memorandum of law in opposition to the appeal filed by The Bank of New York Mellon ( BONY ), solely in its capacity as Securities Administrator for the J.P. Morgan Mortgage Acquisition Trust 2006-WMC2 (the Trust ), from the Decision and Order of the Supreme Court, New York County (Kornreich, J.), dated and entered on September 18, 2015 (the Order ). The motion court found that BONY s claims are barred by New York s six-year statute of limitations for breach-of-contract actions, see New York Civil Practice Law and Rules ( CPLR ) 213(2), and that BONY s attempts to evade that conclusion run afoul of ACE Securities Corp. v. DB Structured Products, Inc., 25 N.Y.3d 581 (2015) ( ACE ), and other well-settled New York law governing the accrual of actions. The decision below was correct and should be affirmed. PRELIMINARY STATEMENT This is a breach-of-warranty action relating to an RMBS transaction known as J.P. Morgan Mortgage Acquisition Trust 2006-WMC2. BONY alleges, inter alia, that defendants-respondents WMC Mortgage, LLC ( WMC ), the originator of the mortgage loans in the Trust, and JPMMAC, the sponsor of the securitization transaction, are contractually required to repurchase thousands of

8 supposedly defective loans from the Trust. BONY alleges that WMC and JPMMAC each made representations and warranties (hereinafter, warranties ) concerning the quality and characteristics of the loans, and that they breached their respective warranties. (R. at 32 (Compl. 2).) WMC made 67 loan-level warranties, while JPMMAC re-made a subset of those same warranties only with respect to limited periods of time. (R. at 110 (PSA 2.06).) BONY also alleges (i) that JPMMAC violated its separate obligation to repurchase loans for breaches of WMC s warranties if WMC fails to do so (R. at 49, 71 (Compl. 57, 138)), and (ii) that JPMC Bank violated its duty to give notice of breaches of other parties warranties, which supposedly constitutes a separate and independent breach of the governing contract. (R. at 66 (Compl. 105).) BONY commenced this action on November 1, 2013, more than seven years after the securitization s Closing Date of June 28, Applying ACE, which held that claims for breaches of representations and warranties in RMBS contracts accrue on the securitization s closing date, ACE, 25 N.Y.3d at 599, the motion court dismissed this action as time-barred. BONY nevertheless insists that the six-year limitations period commenced on some later date after closing, rendering its claims timely notwithstanding the clear, and controlling, holding of ACE that put this question to rest. BONY offers three different arguments in support of its delayed accrual theory. Each of them fails. -2-

9 First, repeating a stale argument that has been soundly rejected by this Court, BONY argues that the so-called accrual provision in Section 7.03 of the Mortgage Loan Sale and Interim Servicing Agreement ( MLSA ) between WMC and JPMMAC is a substantive condition precedent, and that by operation of that provision, a cause of action for breach of the MLSA s warranties did not accrue until notice of breaching loans was given to WMC, and WMC refused to repurchase them. (BONY Br. at ) BONY cannot cite to a single decision from the New York courts in its favor on this question. Indeed, after BONY filed its appeal brief, this Court addressed and rejected this exact argument, holding that accrual provisions in RMBS contracts like the one in Section 7.03 of the MLSA do not constitute substantive conditions precedent, or otherwise operate to delay the running of the statute of limitations. Deutsche Bank Nat l Trust Co. v. Flagstar Capital Mkts. Corp., 36 N.Y.S.3d 135, 137 (1st Dep t 2016) ( Flagstar ). The Second Circuit agrees. E.g., Deutsche Bank Nat l Trust Co. v. Quicken Loans, Inc., 810 F.3d 861, (2d Cir. 2015) ( Quicken Loans ). Further, even if the accrual provision somehow delayed the statute of limitations for BONY s claims against WMC for breaches of WMC s MLSA warranties (it does not), it would not save BONY s claims against JPMMAC for breaches of its separate warranties in the Pooling and Servicing Agreement ( PSA ) governing the Trust (see R. at (Compl , 132)), because there is no accrual provision that would apply -3-

10 to purported breaches of PSA warranties. Consistent with its recent decision in Flagstar, which is in accord with every single decision from the New York courts on this question, this Court should affirm the motion court s ruling that the accrual provision in Section 7.03 of the MLSA does not impose a substantive condition precedent, and that BONY s claims, which accrued on the securitization s Closing Date, are time-barred. Second, BONY argues that the motion court erred in dismissing its claims against JPMMAC for breaching its backstop obligation under the PSA regardless of whether BONY s underlying claims against WMC are timely. BONY contends that JPMMAC s backstop obligation to repurchase loans for breaches of WMC s warranties would have arisen not in 2006 (on or shortly after the Closing Date), but instead in 2012, when the supposedly substantive conditions precedent BONY s demand to WMC and WMC s refusal to honor that demand were met. (BONY Br. at 31.) But this argument contradicts ACE and BONY s own pleadings, and is contrary to New York s law of conditions. And, even if the backstop claims were timely, they would still be barred as a matter of law by the plain language of the PSA, which provides that JPMMAC s backstop obligation exists only to the extent that [WMC] is obligated to repurchase loans. (R. at 107 (PSA 2.03(a)(i)).) Because the statute of limitations has expired on BONY s claims against WMC, and because the PSA provides that JPMMAC s -4-

11 backstop obligation cannot exceed the scope of WMC s obligation, the backstop claims against JPMMAC fail under the PSA. Third, BONY argues that the motion court erred in dismissing its failure-to-notify claim against JPMC Bank, because this cause of action seeks to enforce a separate and independent obligation of JPMC Bank to give notice of other parties breaches, and does not seek a remedy for the breaches themselves. (BONY Br. at 36.) But this argument is an obvious end-run around ACE. There, the Court of Appeals rejected accrual dates which cannot be ascertained with any degree of certainty, in favor of a bright line approach. ACE, 25 N.Y.3d at (internal quotation marks and citations omitted). Far from giving repose to human affairs, id. at , as ACE intended, BONY s delayed accrual rule for failure-to-notify claims would invite future plaintiffs to re-style time-barred repurchase claims as failure-to-notify claims, opening the floodgates to endless new RMBS litigation at a time when that huge wave of litigation has finally crested and is subsiding. The New York courts would again be buried in financialcrisis era mortgage-related litigation. Moreover, BONY contorts the language of the PSA in order to make this argument. The PSA provides that the obligation of the Originator [WMC] or the Seller [JPMMAC], as applicable, to cure or to repurchase (or to substitute for) any Mortgage Loan... shall constitute the sole remedy respecting such omission, -5-

12 defect or breach available to the Securities Administrator and the Trustee on behalf of the Certificateholders. (R. at (PSA 2.03(a)(i) (emphasis added); accord 2.03(a)(ii)).) The PSA thus expressly provides that the only remedies respecting warranty breaches are claims against either WMC or JPMMAC, the warranty makers. The PSA confers upon BONY no right to sue JPMC Bank for claims respecting warranty breaches. See Novak & Co., Inc. v. Travelers Indem. Co., 56 A.D.2d 418, 428 (2d Dep t 1977) (inclusion of plaintiff s right to sue defendant in one agreement, but not a related, second agreement, demonstrated that plaintiff lacked the right to sue under the second agreement). Further, even if such a claim were viable under the PSA, BONY made no effort to plead any separate damages resulting from JPMC Bank s alleged failure to notify, once more dooming this claim. In short, the motion court correctly rejected BONY s attempts to resurrect its time-barred claims. The Order should be affirmed. COUNTER-STATEMENT OF THE QUESTIONS PRESENTED 1. Whether the motion court correctly found, consistent with this Court s recent ruling in Flagstar, that the accrual provision in Section 7.03 of the MLSA did not delay the accrual of BONY s contract claims. 2. Whether the motion court correctly dismissed BONY s so-called backstop claims against JPMMAC, where (i) ACE and BONY s own pleadings -6-

13 demonstrate that these claims, like any other mortgage repurchase claim, accrued at the closing of the transaction, and (ii) the PSA plainly provides that these claims, timely or not, cannot be maintained once the underlying claims against WMC become time-barred. 3. Whether the motion court correctly dismissed BONY s failure-tonotify claims against JPMC Bank as an improper attempt to circumvent both the sole remedy provisions of the PSA and the categorical rule announced in ACE that claims relating to breaches of representations and warranties accrue at the closing of the securitization transaction. COUNTER-STATEMENT OF THE NATURE OF THE CASE A. Overview of the Transaction The Trust s corpus consists of 6,510 primarily non-prime, fixed and adjustable-rate loans secured by one- to four-family residential properties that were originated or originally owned by WMC. (R. at 32 (Compl. 2).) To effectuate the securitization transaction, the parties entered into several interlocking agreements, starting with WMC s sale of certain mortgage loans to JPMMAC pursuant to the MLSA. (R. at (Compl. 5); R. at ) The MLSA includes WMC s numerous loan-level warranties about the nature and quality of the mortgage loans. (R. at 43 (Compl. 37).) JPMMAC then sold a substantial portion of the mortgage loans it acquired from WMC (the Mortgage Loans ) to its -7-

14 affiliate J.P. Morgan Acceptance Corporation I (the Depositor ) pursuant to an Assignment, Assumption and Recognition Agreement dated as of June 1, 2006 (the Assignment Agreement ). (R. at 38-39, 41 (Compl. 21, 31).) The Depositor, in turn, entered into the PSA (together with the MLSA and the Assignment Agreement, the Governing Documents ) with U.S. Bank, National Association (the Trustee ), JPMMAC, JPMC Bank (as Servicer and Securities Administrator ), and Pentalpha Surveillance LLC (as Trust Oversight Manager ). (R. at ) BONY has succeeded JPMC Bank as Securities Administrator, with the right and obligation to bring claims on behalf of the Trustee to enforce repurchase obligations for alleged breaches of warranties. (R. at 45, (Compl. 44; see id. 21).) The PSA was dated as of June 1, 2006, and the closing date of the Transaction was June 28, (R. at 80, 87.) B. Repurchase Obligations Under the Governing Documents In the MLSA, WMC made warranties to JPMMAC concerning the nature, characteristics, history and quality of the Mortgage Loans and the underlying mortgage loan files. (R. at 43 (Compl. 37).) Under the Governing Documents, the benefit of WMC s warranties was transferred to the Trustee for the benefit of Certificateholders, and BONY, as Securities Administrator, has the right to enforce them. (R. at (Compl ).) -8-

15 Under the PSA, some of WMC s warranties were made as of the Closing Date (June 28, 2006), while others were made as of the Whole Loan Sale Date (March 30, 2006) or the Servicing Transfer Date (May 1, 2006). (R. at 110 (PSA 2.06(i), (ii) and (iv)).) To fill the gaps in warranty coverage created by the fact that some of WMC s warranties were made as of the Whole Loan Sale Date or Servicing Transfer Date, and not the Closing Date, JPMMAC also made those warranties for the brief period starting from the effective date of WMC s warranties to the Closing Date. These JPMMAC warranties were made only with respect to the period of time between either the Whole Loan Sale Date (March 30, 2006) or the Servicing Transfer Date (May 1, 2006) and the Closing Date (June 28, 2006). (R. at 110 (PSA 2.06(iii), (v)).) As is standard in mortgage securitization transactions, the parties agreed to a notice and cure-or-repurchase process (the Repurchase Protocol ) to remedy potential breaches of loan-level warranties. Once WMC is made aware of a breach of a representation or warranty that materially adversely affects the value of such Mortgage Loan or the interest therein of the Certificateholders, it has 90 days in which to cure the breach or repurchase the affected loan at a contractually set price. (R. at 107 (PSA 2.03(a)(i)).) JPMMAC is subject to a similar Repurchase Protocol with respect to its separate gap warranties in the PSA. (R. at 108 (PSA 2.03(a)(ii)).) The Repurchase Protocol is the sole remedy -9-

16 respecting such breach available to the Trustee. (R. at (PSA 2.03(a)(ii); see also PSA 2.03(a)(i)).) The Repurchase Protocol also provides that, [i]n the event that [WMC] shall fail to cure the applicable breach or repurchase a Mortgage Loan, JPMMAC shall do so to the extent that [WMC] is obligated to do so under the [MLPA]. (R. at 107 (PSA 2.03(a)(i)); see also (R. 49 (Compl. 57).) C. Relevant Procedural History On June 7, 2012, three weeks before the sixth anniversary of the Closing Date, BONY forwarded to WMC and JPMMAC a repurchase demand letter, dated May 24, 2012, written by counsel for certain unidentified certificateholders claiming to have more than 25 percent of the voting rights under the PSA (the Directing Certificateholders ), which purported to identify warranty breaches with respect to 637 loans in the Trust. (R. at 57 (Compl. 75).) Thereafter, on June 26, 2012, JPMMAC and BONY entered into a tolling agreement that suspended the statute of limitations for repurchase claims relating to the Trust for a period of six months. (R. at ) That agreement expired on December 26, 2012 (R. at 318), and thus the statute of limitations against JPMMAC expired on December 28, (R. at 12 n.3.) On November 1, 2013, more than 10 months after the December 28, 2012 deadline to bring suit had passed, BONY filed its summons with notice. (R. -10-

17 at 11.) Several weeks later, on December 23, 2013, BONY filed the Complaint. (R. at 11.) The Complaint contained two causes of action against the JPMorgan Defendants that are relevant to this appeal: a claim against JPMMAC seeking Specific Performance for Failure to Repurchase Mortgage Loans ( Fourth Cause of Action ), and a claim against JPMC Bank for Breach of Contract: Failure to Notify ( Fifth Cause of Action ). 1 (R. at ) D. The Motions to Dismiss Both WMC and the JPMorgan Defendants moved to dismiss BONY s complaint on March 14, (R. at , ) Both motions argued that BONY s claims were time-barred under this Court s then-recent decision in ACE Securities Corp. v. DB Structured Products, Inc., 112 A.D.3d 522 (1st Dep t 2013), and that any attempt by BONY to claim that the accrual provision in 1 On this appeal, BONY only presses the Fifth Cause of Action against JPMC Bank, and has abandoned its failure-to-notify claims against JPMMAC. (BONY Br. at 13-15, ) BONY has also abandoned its Fourth Cause of Action against JPMMAC to the extent that it asserts breaches of JPMMAC s separate gap warranties, as well as its Third Cause of Action (against JPMMAC for breaches of its own representations and warranties, and for not repurchasing loans that breached those separate warranties), its Seventh Cause of Action (against all defendants for declaratory judgment) and its Eighth Cause of Action (against JPMMAC for breach of the implied covenant of good faith and fair dealing) in their entirety, by not addressing them in its brief. See Mehmet v. Add2net, Inc., 66 A.D.3d 437, 438 (1st Dep t 2009) (on appeal, a party abandons any causes of action that he failed to address... in his brief, and a party may not address [such] claims for the first time in his reply brief ). -11-

18 MLSA Section 7.03 changed the statute of limitations analysis would be foreclosed by New York law. (R. at ; ) The JPMorgan Defendants also argued that, contrary to BONY s contention, the claim under JPMMAC s backstop obligation did not accrue in 2012, when BONY claimed that WMC defaulted by refusing to repurchase loans, but rather upon WMC s purported failure to perform its repurchase obligation in (R. at ) The JPMorgan Defendants pointed out that BONY alleged in its Complaint that WMC s repurchase obligation was not contingent on any action by any other party, and was instead an independent obligation to cure or repurchase the affected Loan when [WMC] became aware of a breach. (R. at , 33 (Compl. 6).) BONY further alleged that WMC had notice of breaches of the WMC Representations because WMC created or approved the loan documentation contained in the Mortgage Loan files (R. at 61 (Compl. 90)), and thus knew of the breaches of the WMC Representations before receiving the Breach Notices. (R. at 61 (Compl. 91).) Thus, according to BONY s own allegations, WMC had an obligation to repurchase loans in 2006, and JPMMAC s backstop obligation must have been triggered, if it had been triggered at all, by WMC s supposed default in 2006, and not by any events in 2012 or The JPMorgan Defendants further argued that, regardless of when the backstop claims accrued, under the language of the PSA, JPMMAC could not be made to -12-

19 repurchase loans when WMC was no longer obligated to do so. (R. at ) Finally, the JPMorgan Defendants argued that the claims against JPMC Bank had to be dismissed because an alleged failure to notify could not be used to circumvent ACE or the Repurchase Protocol (R. at ), and because BONY had not pled any damages resulting from the alleged failure to notify. (R. at ) On June 27, 2014, the motion court issued an order holding the motions to dismiss in abeyance pending the Court of Appeals review of this Court s decision in ACE. (R. at 12.) On June 15, 2015, shortly after the Court of Appeals affirmed this Court s ACE decision, the motion court directed further briefing to afford plaintiff the opportunity to argue that ACE does not render this case time-barred. (R. at 12.) Following that additional briefing, on September 18, 2015, the motion court issued its Order dismissing this action in its entirety. (R. at 8.) The motion court agreed with the Defendants-Respondents that the MLSA s accrual provision does not render this action to be timely because a court cannot hold that the repurchase protocol in Section 7.03 of the MLSA is a substantive condition precedent without contravening ACE and every New York court to consider the issue has held that the repurchase protocol is a procedural [and not substantive] condition precedent. (R. at 17, ) The motion court -13-

20 similarly dismissed the backstop claims against JPMMAC because the repurchase protocols in RMBS contracts, whether for claims against warranty makers or claims against backstopping parties, are not substantive conditions and do not change the fact that [t]he Trust suffered a legal wrong at the moment a warranty was breached at closing. (R. at 15 (quoting ACE).) Lastly, the motion court found that BONY s purported independent cause of action for failure to notify is not viable. (R. at 17.) 2 It thus dismissed BONY s Complaint in its entirety. This appeal followed. STANDARD ON THIS APPEAL This Court reviews the grant of a motion to dismiss de novo. See CPLR 5501(c); Leon v. Martinez, 84 N.Y.2d 83, (1994). On a motion made under CPLR 3211, a court must accept the facts as alleged in the complaint as true, but need not accept factual allegations, or accord favorable inferences, where the factual assertions are plainly contradicted by documentary evidence. Bishop v. Maurer, 33 A.D.3d 497, 498, (1st Dep t 2006), aff d, 9 N.Y.3d 910 (2007) (internal quotation marks and citations omitted). 2 The motion court did not reach the JPMorgan Defendants alternative argument that BONY failed to allege damages separately flowing from JPMC Bank s purported failure to notify of other parties warranty breaches. -14-

21 Dismissal for failure to comply with the statute of limitations is appropriate under CPLR 3211(a)(5) when the moving party makes a prima facie showing that the limitations period elapsed before the commencement of the action, and the non-moving party fails to aver evidentiary facts establishing that [their] cause of action falls within an exception to the statute of limitations. TIAA Global Invs., LLC v. One Astoria Sq. LLC, 127 A.D.3d 75, 97 (1st Dep t 2015) (quoting Texeria v. BAB Nuclear Radiology, P.C., 43 A.D.3d 403, 405 (2d Dep t 2007) (brackets in TIAA); accord Hoosac Valley Farmers Exch., Inc. v. AG Assets, Inc., 168 A.D.2d 822, 823 (3d Dep t 1990). As discussed, under these well-settled standards, this Court should affirm the dismissal of this action. ARGUMENT I. THE MOTION COURT CORRECTLY REJECTED BONY S ARGUMENT THAT THE ACCRUAL PROVISION DELAYS THE RUNNING OF THE STATUTE OF LIMITATIONS. In ACE, the Court of Appeals held that claims relating to breaches of mortgage loan warranties accrue on the relevant transaction s closing date, and not, as some RMBS plaintiffs had argued, when a repurchase demand is made and refused. 25 N.Y.3d at 589. In the court below, BONY tried to evade this clear rule by arguing that under the Accrual Provision, the Trust s right to a remedy is expressly conditioned upon notice, the opportunity to cure, and a demand, and that, as a result, the cause of action did not accrue until all three prerequisites -15-

22 were satisfied, which was, at the earliest, August 22, (R. at 454.) BONY repeats this argument to this Court. (BONY Br. at 2 ( no cause of action against WMC accrues and hence the statute of limitations does not begin to run until Plaintiff actually learns of a defect and demands that WMC repurchase the affected Loan ).) This Court has since considered, and rejected, the same argument. Less than a month ago, this Court, confronted with a similar accrual clause, held both that [t]he accrual provision in the agreement is unenforceable as a matter of New York public policy, and that, even if it were enforceable, its requirement that plaintiff make a demand on defendant for performance of the agreement does not constitute a substantive condition precedent that could delay accrual of the breach of contract claim. Flagstar at The Flagstar decision was hardly the first to reach this conclusion. As the motion court observed in its ruling, every New York court to consider the issue has held that the repurchase protocol is a procedural [not substantive] condition precedent, and that [a]ccordingly, the MLSA s accrual provision does not render this action to be timely. (R. at ) Even before this Court s ruling in Flagstar, the courts in -16-

23 New York uniformly found that such provisions do not operate to delay the running of the statute of limitations. 3 BONY has no answer to the chorus of cases that, even before Flagstar, rejected its delayed accrual argument. Instead, it tries to spin one of these decisions the Second Circuit s decision in Quicken Loans as somehow supportive of its position on this appeal. In Quicken Loans, the Second Circuit held that [an accrual provision] is merely procedural and does not delay accrual of the cause of action. Quicken Loans at 867. Quicken Loans thus concluded that the cause of action for breach of representations and warranties in RMBS contracts accrues at closing, and not upon the making of a repurchase demand, just as every other court in New York had done. Remarkably, BONY argues that [t]reating the demand requirement as a substantive condition precedent to accrual, as the parties 3 See Deutsche Bank Nat l Trust Co. v. Flagstar Capital Mkts. Corp., 2015 WL (Sup. Ct. N.Y. Cty. Apr. 13, 2015); Law Debenture Trust Co. of N.Y. v. DLJ Mortg. Capital, Inc., 2015 WL (Sup. Ct. N.Y. Cty. Apr. 8, 2015); U.S. Bank Nat l Ass n v. GreenPoint Mortg. Funding, Inc., 2015 WL (Sup. Ct. N.Y. Cty. Mar. 3, 2015). The decisions of New York s federal courts are also in accord. Deutsche Bank Nat l Trust Co. v. Quicken Loans Inc., 2014 WL , at *3-*4 (S.D.N.Y. Aug. 4, 2014), aff d, 810 F.3d 861 (2d Cir. 2015); Lehman XS Trust, Series 2006-GP2 v. GreenPoint Mortg. Funding, Inc., 2014 WL , at *3 (S.D.N.Y. Mar. 31, 2014); Lehman XS Trust, Series N v. GreenPoint Mortg. Funding, Inc., 991 F. Supp. 2d 472, 478 (S.D.N.Y. 2014), aff d, 643 F. App x 14, (2d Cir. 2016) (summary order); Wells Fargo Bank, N.A. v. J.P. Morgan Chase Bank, N.A., 2014 WL , at *3 (S.D.N.Y. Mar. 27, 2014), aff d, 643 F. App x 44, (2d Cir. 2016) (summary order); U.S. Bank Nat l Ass n v. Dexia Real Estate Capital Mkts., 643 F. App x 48, (2d Cir. 2016) (summary order). -17-

24 agreed, is also consistent with the Second Circuit s recent decision in Quicken Loans because, according to BONY, WMC s repurchase obligation arose only after Plaintiff learned of a defect and demanded compliance with the MLSA. (BONY Br. at 29.) But that is simply a restatement of BONY s conclusion, and not an analysis of either the Quicken Loans decision or the text of the MLSA. BONY points to no difference in contract language (or any other fact) that would distinguish the clear holding in Quicken Loans that notwithstanding the shall accrue language, the Trustee s demand seeks only the remedy to which it is already entitled, [and therefore] does not delay accrual of the cause of action. Quicken Loans at 867 (fn. omitted). In any event, putting aside BONY s puzzling contortions of Quicken Loans, this Court has since settled the question. Flagstar at In short, the law in New York is clear: BONY s claims accrued on the Closing Date, and were thus time-barred long before it commenced this action. 4 Section 7.03 of the MLSA does not alter this conclusion. 4 Further, the accrual provision in the MLSA does not apply to BONY s claims that JPMMAC breached its own separate gap warranties (R. at (Compl , 132)) in Section 2.06 of the PSA. Thus, even if that provision delayed the limitations period for breaches of WMC s warranties in the MLSA (it does not), the motion court properly dismissed as timebarred BONY s claims against JPMMAC for breaches of its separate PSA warranties in the Third Cause of Action. (See R. at ) -18-

25 II. THIS COURT SHOULD AFFIRM THE DISMISSAL OF BONY S BACKSTOP CLAIMS AGAINST JPMMAC. BONY next argues that, apart from whenever its underlying breachof-warranty claims against WMC accrued, its backstop claims against JPMMAC under its Fourth Cause of Action (i) accrued in 2012 and (ii) survived the expiration of the statute of limitations against WMC. This is not correct. A. The Backstop Claims Are Untimely. 1. The Accrual Provision Does Not Create a Substantive Condition Precedent. BONY first argues that Section 2.03(a)(i) of the PSA which contains the notice and cure-or-repurchase provision for WMC s warranties and JPMMAC s backstop obligation imposes a set of substantive conditions precedent to the accrual of a backstop cause of action against JPMMAC. The Repurchase Protocol provides that, upon discovery by WMC or notice to WMC by any party of a material, adverse breach of a warranty, WMC will have 90 days to cure the breach or repurchase the loan. (R. at 107 (PSA 2.03(a)(i)).) This is a standard notice and cure-or-repurchase provision. Immediately following that provision, the PSA goes on to state that [i]n the event that [WMC] shall fail to cure the applicable breach or repurchase a Mortgage Loan, JPMMAC shall do so to the extent that [WMC] is obligated to do so under the [MLSA]. (R. at 107 (PSA 2.03(a)(i)).) -19-

26 ACE teaches that a cure or repurchase obligation [is] not a separate and continuing promise of future performance, but merely a remedy for breach of a warranty. ACE, 25 N.Y.3d at As such, it is not an independently enforceable right, nor [does] it continue for the life of the investment. Id. at 599. That rule applies with equal force to JPMMAC s backstop repurchase obligation in Section 2.03 of the PSA, which is simply another remedy for WMC s breach in the event WMC fails to comply with its own repurchase obligation. If, under ACE, WMC s repurchase obligation is not an independent obligation that can be triggered at a later date, then neither is JPMMAC s backstop repurchase obligation. Both are part of the same remedial scheme for breaches of WMC s warranties, not a separate and continuing promise of future performance. Id. Indeed, a contrary ruling here would directly conflict with ACE s holding that failure to cure or repurchase [is] not a substantive condition precedent that defer[s] accrual. Id. at 599. Nothing in the notice and cure-or-repurchase language of Section 2.03 of the PSA serves as a substantive condition precedent to the accrual of repurchase claims and this is true regardless of whether the repurchase claims are asserted against WMC (the warranty provider) or JPMMAC (the backstopping party). See ACE, 25 N.Y.3d at (holding that the cure or repurchase obligation was not a separate and continuing promise of future performance; rather, it was the Trust s sole remedy in the event of [a] breach of representations and warranties ); see also -20-

27 Hahn Auto. Warehouse, Inc. v. Am. Zurich Ins. Co., 18 N.Y.3d 765, 772 n.5 (2012) (rejecting the contention that we should adopt an accrual-upon-demand rule because such a rule would, of course, put the operation of the statute of limitations under the sole control of [one party] ). 2. Labelling the Backstop Obligation a Guaranty Does Not Change the Statute of Limitations Accrual Analysis. BONY also tries to avoid ACE s accrual-at-closing rule by arguing that JPMMAC s backstop obligation was a guaranty of WMC s performance, and that, as such, a backstop claim do[es] not accrue until WMC fails to repurchase breaching Loans. (R. at 452.) Yet, even if the backstop obligation amounted to a guaranty, it is well-settled that a guaranty obligation arises upon the underlying obligor s default. State v. Peerless Ins. Co., 117 A.D.2d 370, (3d Dep t 1986) ( Since [obligor s] default is the condition which gave rise to a cause of action against defendant, we must determine when that default occurred. ). And under ACE, WMC breached its warranties, if at all, on the Closing Date, and refusal to repurchase the allegedly defective mortgages d[oes] not give rise to a separate cause of action. ACE, 25 N.Y.3d at 589. A trust suffer[s] a legal wrong at the moment [a party] allegedly breache[s] the representations and warranties. ACE, 25 N.Y.3d at 598. Consequently, WMC s default on its repurchase obligations occurred on the Closing Date when it supposedly breached its warranties, and not when it refused to repurchase loans in -21-

28 response to BONY s later demands. In other words, WMC s alleged failure to repurchase loans upon demand in 2012 is not a second legal wrong, amounting to a second default, which would delay the accrual of its claims against JPMMAC. Moreover, although BONY now argues that WMC s default did not occur until it failed to meet its August 22, 2012 deadline under the MLSA to cure or repurchase the defective Loans (BONY Br. at 35), that is not what BONY alleged in its Complaint. To the contrary, BONY alleged that WMC knew of breaches on (or before) the Closing Date, and had an immediate obligation, on the Closing Date, to repurchase the breaching loans irrespective of whether or when it received formal notice of breaches. Specifically, BONY alleged that: As Originator, WMC had notice of breaches... because WMC created or approved the loan documentation... and knowingly approved and originated the Loans based thereon. (R. at 61 (Compl. 90).) WMC, through its origination and initial servicing of the Mortgage Loans... discovered breaches of... WMC s representations and warranties. (R. at 35 (Compl. 11).) WMC s cure-or-repurchase obligation was not contingent on any action by any other party and WMC had an independent obligation to cure or repurchase the affected Loan when [it] became aware of a breach. (R. at 33 (Compl. 6).) Under these allegations, WMC defaulted on its repurchase obligations on the Closing Date because (i) it had the independent obligation to repurchase loans when it became aware of a breach, irrespective of third-party notice, and (ii) it was aware of the alleged breaches at or before the Closing Date given that it -22-

29 originated each of the Mortgage Loans. If these allegations are deemed true, as they must be on a motion to dismiss, then JPMMAC s purported guaranty obligations would have been triggered by WMC s contractual breaches on the Closing Date. 5 BONY may not now contradict its own allegations in order to defeat a motion to dismiss. See Goldstein v. Bass, 138 A.D.3d 556, 558 (1st Dep t 2016) (affirming dismissal of action where plaintiff s argument contradicted his own complaint); see also Syncora Guar. Inc. v. J.P. Morgan Sec. LLC, 110 A.D.3d 87, 94 (1st Dep t 2013) (even in the summary judgment context, a party cannot defeat the motion by contradicting the allegations in its own pleadings ). JPMMAC s backstop obligation was thus triggered, if at all, in 2006, not in BONY s claims against JPMMAC for breaches of that obligation are therefore untimely. B. Even If Timely, the Backstop Claims Are Barred by the Plain Terms of the PSA. Even if the backstop claims against JPMMAC were timely, they nonetheless fail as a matter of law under the plain terms of the PSA. Section 2.03(a)(i) provides that [i]n the event that [WMC] shall fail to cure the applicable 5 Even if WMC s default was, in some sense, not complete until 90 days after the Closing Date, when the cure period elapsed, the limitations period on the backstop claims still would have expired on March 28, 2013, more than seven months before BONY commenced this action. -23-

30 breach or repurchase a Mortgage Loan, JPMMAC shall do so, but only to the extent that [WMC] is obligated to do so under the [MLPA]. (R. at 107 (PSA 2.03(a)(i) (emphasis supplied).) In other words, if WMC is not obligated to repurchase any loans under the MLSA for whatever reason because, for example, BONY s claims against WMC are time-barred then JPMMAC likewise has no contractual obligation to repurchase loans under this provision. BONY relies on American Trading Co. v. Fish, 42 N.Y.2d 20 (1977), for the proposition that a guaranty is a separate obligation and may not be discharged merely because the Statute of Limitations could have been raised in an action against the principal. (BONY Br. at 33 (quoting Fish, 42 N.Y.2d at 26).) Fish is wholly inapposite. In Fish, the Court of Appeals found that a guaranty claim could be subject to a different statute of limitations than the statute of limitations governing the underlying contract claim. Fish, 42 N.Y.2d at Fish does not stand for the proposition that all guaranty claims necessarily survive the expiration of the limitations period against the principal obligor. Rather, as Fish teaches, it depends on the language of the guaranty. Indeed, Fish itself recognized that ordinarily the liability of a guarantor will not exceed in scope that of his principal. Id. at 26. What matters, then, is the language of the guaranty, which, as a separate undertaking, may impose lesser or even greater collateral responsibility on the guarantor. Id. -24-

31 By providing that [i]n the event that [WMC] shall fail to cure the applicable breach or repurchase a Mortgage Loan, JPMMAC shall do so only to the extent that [WMC] is obligated to do so under the [MLSA] (R.107 (PSA 2.03(a)(i) (emphasis supplied)), the sophisticated commercial parties to the PSA agreed that the liability of a guarantor [JPMMAC] will not exceed in scope that of his principal [WMC]. Fish, 42 N.Y.2d at 26. There is no other way to read the PSA. See Law Debenture Trust Co. of N.Y. v. DLJ Mortg. Capital, Inc., 2015 WL , at *4 (Sup. Ct. N.Y. Cty. Apr. 8, 2015) (finding that the phrase to the extent that the Originator is obligated to do so under the Mortgage Loan Purchase Agreement and the Reconstitution Agreement in an RMBS contract demonstrates that [The Seller s] obligation, if the Originator is unable to cure, is no greater than the Originator s obligation ). BONY next argues that JPMMAC is still liable because WMC is still, in some formal legalistic sense, obligated to repurchase loans after the limitations period has expired. (BONY Br. at ) This hyper-technical and strained reading of the word obligated as used in the PSA is completely divorced from commercial reality. WMC is not, in any practical sense, obligated to remedy breaches of contract as to which the statute of limitations has expired. Indeed, Professor Siegel, whom BONY cites in support of its argument that a statute of limitations does not eliminate an obligation but merely suspends the remedy, has -25-

32 noted that [c]lients told that they ve lost only their remedy, not their right, have not been known to embrace their attorneys in tearful relief. Siegel, N.Y. Prac. 34 (5th ed.). New York courts interpret contracts to avoid results that are commercially unreasonable or contrary to the reasonable expectations of the parties, In re Lipper Holdings, 1 A.D.3d 170, 171 (1st Dep t 2003) (internal citations omitted), and reject interpretations that depend[] on formalistic literalism. Greenwich Capital Fin. Prods., Inc. v. Negrin, 74 A.D.3d 413, 415 (1st Dep t 2010) (internal quotation marks omitted). BONY s gloss on the word obligated is formalistic in the extreme, and this Court should reject it. III. THIS COURT SHOULD AFFIRM THE DISMISSAL OF BONY s FAILURE-TO-NOTIFY CLAIMS AGAINST JPMC BANK. In its final attempt to evade the statute of limitations, BONY claims that, even if it cannot sue the warranty makers (WMC and JPMMAC), it should be allowed to sue the servicer, JPMC Bank, under its Fifth Cause of Action for failing at some unspecified time after the Closing Date to give notice of other parties breaches of warranties. 6 This is exactly the type of near-perpetual liability 6 As noted above, BONY has abandoned its failure-to-notify claims against JPMMAC. Even if BONY had not abandoned the claim, it would be doomed by BONY s own allegation that JPMMAC knew of breaches before closing. (R. at 35 (Compl. 11 ( JPM[M]AC, through its control over the underwriter who conducted the due diligence of the Mortgage Loans

33 in RMBS cases that the Court of Appeals put to rest in ACE. It is also a theory that, in this case, would contradict the PSA, which specifies who may be sued in connection with warranty breaches, and does not permit claims against JPMC Bank arising from alleged warranty breaches. A. Under ACE, There Can Be Only One Breach of Contract Arising From Alleged Warranty Breaches, and It Occurs at Closing. In ACE, the Court of Appeals rejected the plaintiff s attempt to circumvent the statute of limitations by arguing that the duty to repurchase was a distinct and continuing obligation that [the defendant] breached each time it refused to cure or repurchase a non-conforming loan. ACE, 25 N.Y.3d at 594. The Court of Appeals recognized that allowing a single breach of contract (the making of a false warranty) to be converted into several separate breaches, each with a different accrual date, would damage the societal interest or public policy of giving repose to human affairs. Id. at 593. Such an approach would also be at odds with New York s repeated rejection of accrual dates which cannot be discovered breaches of JPM[M]AC s and WMC s representations and warranties )), (R. at 65 (Compl. 99 ( JPM[M]AC s own due diligence led it to discover or should have led it to discover breaches of JPM[M]AC s and/or WMC s Representations )).) Accepting those allegations as true for the purpose of this motion, JPMMAC s duty to notify already existed, and any failure-to-notify claim would have accrued, by the Closing Date. Thus, under BONY s own allegations, any failure-to-notify claim against JPMMAC would be just as untimely as BONY s breach of warranty claims. -27-

34 ascertained with any degree of certainty, in favor of a bright line approach. Id. at If BONY is correct that the failure to notify is really a later-accruing breach of a distinct obligation (BONY Br. at 36 ), even though the failure to repurchase is not, ACE, 25 N.Y.3d at 594, then ACE will be upended as a practical matter. 7 Plaintiffs barred by the statute of limitations from bringing claims against the actual makers of warranties could instead simply sue the servicers for not giving notice of other parties warranty breaches, and the (of late) receding deluge of RMBS-related litigation would crest anew. But that is not the law. ACE reflects New York s long-standing commitment to the principle that plaintiffs cannot evade a statute of limitations by re-casting their claims in different language or names. As early as 1937, the Court of Appeals ruled that in applying the Statute of Limitations, a New York court should look for the reality, and the essence of the action and not its mere name. Brick v. Cohn-Hall-Marx Co., 276 N.Y. 259, 264 (1937). Notwithstanding the plaintiff s fraud allegations in Brick, 7 Although BONY now argues that the alleged failure to notify is a separate breach of contract, it previously conceded that it was not. In The Bank of New York Mellon v. WMC Mortgage LLC, et al., No /2012 (Sup. Ct. N.Y. Cty.), BONY argued to the motion court that, although pled as separate causes of action, its claims for breach of representations, failure to notify and failure to repurchase were all one breach of the contract. (R. at 620.) The JPMorgan Defendants agree. BONY s contention that JPMC Bank s alleged failure to notify is a breach of a distinct obligation is thus not only wrong as a matter of law, but directly conflicts with its prior statement to the court in its other case against WMC and the JPMorgan Defendants. (R. at 420.) -28-

35 the Court of Appeals held that the case was, so far as the Statute of Limitations is concerned, an action upon the contract and within the six-year statute. Id.; see also Entm t Partners Grp., Inc. v. Davis, 198 A.D.2d 63, 64 (1st Dep t 1993) ( [I]t is well settled that a plaintiff may not circumvent the one-year statute of limitations applicable to defamation actions by denominating the action as one for intentional interference with economic relations, prima facie tort, or injurious falsehood ). In a case such as this one, where the claim for breach of warranties is time-barred, this Court should look to the substance of BONY s failure-to-notify claims, and forbid the use of artful pleading to create a set of claims for which the statute of limitations cannot be ascertained with any degree of certainty. ACE, 25 N.Y.3d at As the Court of Appeals put it, New York law favor[s] a bright line approach and yet the societal interest or public policy of giving repose to human affairs would be vitiated if RMBS plaintiffs are now free to bring boundless failure-to-notify claims against servicers even when their repurchase claims against the actual warranty makers are untimely under ACE and its progeny. The Court of Appeals could not have intended that its ruling in ACE could be so easily evaded by artful pleading. This Court s recent rulings in Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc., and Morgan Stanley Mortgage Loan Trust ARX v. Morgan Stanley Mortgage Capital Holdings, LLC, are not to the -29-

36 contrary. Although the Court accepted the notion of a limited failure-to-notify claim in certain RMBS warranty cases, it did so only in the context of timely cases brought against warranty makers, not in the context of cases against servicers accused of failing to give notice of other parties warranty breaches for which the statute of limitations has expired. In Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc., this Court stated that plaintiffs could pursue damages for defendant s failure to give prompt written notice after it discovered material breaches of the representations and warranties. 133 A.D.3d 96, 108 (1st Dep t 2015). Critically, that case involved claims against a single defendant that was the maker of the warranties and was subject to a provision stating that [a]ll rights and remedies of the Purchaser under this Agreement are distinct from, and cumulative with, any other rights or remedies under this Agreement or afforded by law or equity and all such rights and remedies may be exercised concurrently, independently or successively, Nomura, 133 A.D.3d at 101. Thus, it involved a broad cumulative remedies provision, not just the standard sole remedy provision at issue in ACE and this case. Next, in Morgan Stanley Mortgage Loan Trust ARX v. Morgan Stanley Mortgage Capital Holdings LLC, another case involving only the maker of the warranties (and not a servicer), this Court explained that it left open the possibility that, even for ordinary breach of contract claims, equity may require -30-