Preview
FILED: NEW YORK COUNTY CLERK 01/30/2015 06:36 PM INDEX NO. 650337/2013
NYSCEF DOC. NO. 108 RECEIVED NYSCEF: 01/30/2015
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
NOMURA HOME EQUITY LOAN, INC., HOME
EQUITY LOAN TRUST, SERIES 2007-2 by HSBC
BANK USA, NATIONAL ASSOCIATION, as Trustee, Index No. 650337/2013
(Friedman, J.)
Plaintiff,
Oral Argument is Requested
v.
NOMURA CREDIT & CAPITAL, INC.,
Defendant.
NOMURA CREDIT & CAPITAL, INC.,
Third-Party Plaintiff,
v.
WELLS FARGO BANK, N.A. and OCWEN LOAN
SERVICING, LLC,
Third-Party Defendants.
REPLY MEMORANDUM OF LAW IN SUPPORT OF THIRD-PARTY
DEFENDANT WELLS FARGO BANK N.A.’S MOTION TO DISMISS
JONES DAY
Jayant W. Tambe
Howard F. Sidman
I-Heng Hsu
Kristen R. Vogel
222 East 41st Street
New York, New York 10017
Tel: (212) 326-3939
TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT ................................................................................................... 1
ARGUMENT ................................................................................................................................. 3
I. NOMURA CANNOT SAVE ITS FLAWED CONTRACT CLAIM................................ 3
A. Nomura Has Failed to State a Claim Against Wells Fargo as Master
Servicer .................................................................................................................. 3
1. Nomura Cannot Identify Any Obligation That Wells Fargo
Supposedly Breached ................................................................................. 3
2. Nomura Fails to Allege That Wells Fargo Had Knowledge
of Nomura’s Breaches................................................................................ 6
3. Neither Equity Nor Economics Permit Nomura to Shield Itself
From Its Misbehavior by Asserting Rights That Belong Solely to
Others ......................................................................................................... 8
4. Nomura’s Claim to an Evergreen Statute of Limitation is Baseless ........ 10
B. Nomura Cannot Recover on Claims Against Wells Fargo Because
Nomura’s Breaches Preceded, And Were The But-For Cause of The
Breaches Nomura Alleges.................................................................................... 11
CONCLUSION ............................................................................................................................ 14
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TABLE OF AUTHORITIES
Page
CASES
ACE Sec. Corp. v. DB Structured Prods., Inc.,
112 A.D.3d 522, 977 N.Y.S.2d 229 (1st Dep’t 2013) ............................................................10
Amarant ex rel. Mercury Beach-Maid v D’Antonio,
197 A.D.2d 432, 602 N.Y.S.2d 837 (1st Dep’t 1993) ..............................................................9
Ambac Assurance Corp. v. EMC Mortg. LLC,
121 A.D.3d 514, 995 N.Y.S.2d 545 (1st Dep’t 2014) ...............................................................8
Asset Securitization Corp. v. Orix Capital Mkts., LLC,
12 A.D.3d 215, 784 N.Y.S.2d 513 (1st Dep’t 2004) ................................................................8
Bayridge Air Rights, Inc. v. Blitman Const. Corp.,
80 N.Y.2d 777 (1992) .............................................................................................................11
Citigroup Mortg. Loan Trust 2007-AMC3 v. Citigroup Global Mkts. Realty Corp.,
13 Civ. 2843 (GBD), 2014 U.S. LEXIS 47252 (S.D.N.Y. Mar. 31, 2014) ..............................7
Connoni v. Edwards Angell Palmer & Dodge LLP,
No. 601295/09, 2012 WL 3812621 (Sup. Ct. N.Y. County. Aug. 29, 2012) .........................14
Flag Wharf, Inc. v. Merrill Lynch Capital Corp.,
40 A.D.3d 506, 836 N.Y.S.2d 406 (1st Dep’t 2007) ................................................................5
Ginett v Computer Task Group,
962 F.2d 1085 (2d Cir 1992) ...................................................................................................12
Greenspan v. Amsterdam,
145 A.D.2d 535, 536 N.Y.S.2d 90 (2d Dep’t 1988) ...............................................................13
Guardian Music Corp. v. James W. Guercio Enters., Inc.,
459 F. Supp. 2d 216 (S.D.N.Y. 2006), aff’d, 271 F. App’x 119 (2d Cir. 2008) .....................13
LaSalle Bank N.A. v. Nomura Asset Capital Corp.,
47 A.D.3d 103, 846 N.Y.S.2d 95 (1st Dep’t 2007) ..................................................................9
Miglietta v. Kennecott Copper Corp.,
25 A.D.2d 57, 266 N.Y.S.2d 936 (1st Dep’t 1966) ...................................................................4
Onex Food Servs., Inc. v. Grieser,
Nos. 93 Civ. 0278 (DC), 94 Civ. 3063(DC), 1996 U.S. Dist. LEXIS 2797
(S.D.N.Y. Mar. 11, 1996) .......................................................................................................11
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Pfizer, Inc. v. Stryker Corp.,
348 F. Supp. 2d 131 (S.D.N.Y. 2004) .....................................................................................12
Policemen’s Annuity and Benefit Fund of the City of Chicago v. Bank of Am., NA,
943 F. Supp. 2d 428 (S.D.N.Y. 2013) .......................................................................................6
Quadrant Structured Prods. Co. Ltd. v. Vertin,
23 N.Y.3d 549 (2014) ...............................................................................................................8
Ret. Bd. of the Policemen’s Annuity & Benefit Fund of the City of Chicago v.
Bank of N.Y. Mellon,
Nos. 13-1776-cv, 13-1777-cv, 2014 U.S. App. LEXIS 24264 (2d Cir. Dec. 23,
2014) .........................................................................................................................................5
Rosenthal Paper Co. v Natl. Folding Box & Paper Co.,
226 N.Y. 313 (1919) ...............................................................................................................12
Tonking v. Port. Auth. of NY & N.J.,
3 N.Y.3d 486 (2004) .................................................................................................................5
U.S. Bank, N.A. v. Citigroup Global Mkts. Realty Corp.,
13 Civ. 6989 (GDB), 2014 U.S. Dist. LEXIS 169160 (S.D.N.Y. Nov. 14,
2014) ..............................................................................................................................1, 2, 6, 7
U.S. Bank Natl. Assoc. v. Countrywide Home Loans, Inc.,
2013 NY Slip Op 31842(U), 2013 N.Y. Misc. LEXIS 3534 (Sup. Ct. N.Y.
County May 29, 2013) ...............................................................................................................4
Vermont Teddy Bear Co. v. 538 Madison Realty Co.,
1 N.Y.3d 470 (2004) .................................................................................................................9
Weiss v Herlihy,
23 A.D. 608, 49 N.Y.S. 81 (1st Dep’t 1897) ..........................................................................10
STATUTES
CPLR 213(2) ..................................................................................................................................10
CPLR 3211(a)(1) .............................................................................................................................1
CPLR 3211(a)(5) .............................................................................................................................1
CPLR 3211(a)(7) .............................................................................................................................1
OTHER AUTHORITIES
22 N.Y. Jur. 2d, Contracts, § 379...................................................................................................13
23 Williston on Contracts § 63:8 (4th ed. 2002) ...........................................................................13
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28 N.Y. Prac., Contract Law § 17:12 (2006) ................................................................................13
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Third-Party Defendant Wells Fargo Bank, N.A. (“Wells Fargo”) respectfully submits this
Reply Memorandum of Law in support of its motion, pursuant to Civil Practice Law and Rules
(“CPLR”) 3211(a)(1), (5) and (7), to dismiss with prejudice the third-party complaint filed on
August 27, 2014 (the “Complaint” or “Compl.”) by Third-Party Plaintiff Nomura Credit &
Capital Inc. (“Nomura”) in connection with the residential mortgage-backed securitization,
Nomura Home Equity Loan, Inc., Series 2007-2 (the “Trust”).1
PRELIMINARY STATEMENT
Nomura has based its opposition brief on a fundamental misstatement of Nomura’s
pleading obligation as a (third-party) plaintiff. Nomura stands the law on its head when it
contends that “Wells Fargo has failed to identify any provision in the PSA establishing, as a
matter of law, that its obligations … are as limited as it contends.” Opp. Br. at 10. Settled New
York law squarely makes it Nomura’s burden to identify the purported duties that Nomura
alleges have been breached. Nomura does not identify any specific obligations in the PSA that
impose a duty on Wells Fargo as Master Servicer, or upon Ocwen as Servicer, to investigate
defaulting loans for compliance with the Representations and Warranties made by Nomura.2
That is because the PSA does not impose any such obligations. See infra at I.A.1. Similarly,
Nomura’s opposition ignores its burden to plead any facts that Wells Fargo had knowledge of
alleged specific servicing failures. See infra at I.A.2.
Not surprisingly, the only New York court to have addressed Nomura’s misguided theory
of liability has rejected it in toto. In U.S. Bank, N.A. v. Citigroup Global Mkts. Realty Corp., 13
1
All capitalized terms not defined herein have the meanings given in Wells Fargo’s Memorandum of Law
in support of its motion, dated November 5, 2014 (“MTD Br.”). References to “Opp. Br.” are to Nomura’s
Opposition to the motion to dismiss, dated December 23, 2014.
2
Nomura has withdrawn its claims against Wells Fargo as Custodian. Opp. Br. at 2, n.4.
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Civ. 6989 (GDB), 2014 U.S. Dist. LEXIS 169160 (S.D.N.Y. Nov. 14, 2014), Judge Daniels
recently dismissed similar allegations that were “couched in speculative language concerning
whether [the Master Servicer or Sub-Servicer] actually discovered any breaches, and thus
whether its obligations were triggered under the Agreements at all.” Id. at *24.
The Amended Complaint merely provides facts supporting the responsibilities
[the Master Servicer or Sub-Servicer] undertook and conclusorily alleges that
these tasks should have alerted [the Master Servicer or Sub-Servicer] that the
alleged breaches exist; Plaintiff does not provide any factual support for how
these responsibilities caused or enabled [the Master Servicer or Sub-Servicer] to
discover these breaches.
Id. at *24-25 (emphasis added).3
The balance of Nomura’s arguments amount to little more than an effort to rewrite New
York law and alter the terms of the PSA to somehow grant Nomura the capacity to pursue its
claims (see infra at I.A.3, I.B) and to render applicable statutes of limitation inapplicable to
Nomura’s claims. See infra at I.A.4. Those arguments necessarily must fail and Nomura’s
Complaint must be dismissed.4
3
The U.S. Bank decision was not addressed in Wells Fargo’s opening brief because it was issued after
Wells Fargo filed its motion. However, the decision was issued over a month before Nomura filed its opposition
brief. Nomura’s failure to address the U.S. Bank decision is telling.
4
Although the Stovall Affirmation mischaracterizes the conversations between counsel for Wells Fargo
and Nomura discussing, at Wells Fargo’s suggestion, a way to address these motions in an efficient manner, there is
no use in further debate on the issue.Wells Fargo is committed to proceeding with resolving these improper claims
however the Court deems appropriate.
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ARGUMENT
I. NOMURA CANNOT SAVE ITS FLAWED CONTRACT CLAIM
A. Nomura Has Failed to State a Claim Against Wells Fargo as Master Servicer
1. Nomura Cannot Identify Any Obligation That Wells Fargo
Supposedly Breached
Contrary to Nomura’s repeated claim (Opp Br. at 10-13), the PSA imposed no duty on
Wells Fargo to investigate defaulted mortgage loans for breaches of Representations and
Warranties. Instead, Nomura impermissibly attempts to expand the duties imposed upon Wells
Fargo as Master Servicer by relying on language in the PSA that requires Wells Fargo to perform
its obligations in accordance with “Accepted Master Servicing Practices.” Nomura’s position is
based on a gross misreading of the PSA. Opp. Br. at 10-12. This provision does not expand
Wells Fargo’s obligations. Instead, the PSA states that “[i]n performing its obligations
hereunder, the Master Servicer shall act in a manner consistent with Accepted Master Servicing
Practices.” PSA, § 4.01 (emphasis added). This language merely identifies the standard by
which Wells Fargo is to perform its nominated contractual obligations “hereunder.”
Nomura also cannot manufacture a duty merely because Wells Fargo supposedly had
discretion to “determine a proper course to maximize value.” Opp. Br. at 11-13. The PSA
releases Wells Fargo from “ any liability … for taking any action or for refraining from taking
any action in good faith pursuant to this Agreement, or for errors in judgment.” PSA, § 7.04(a).
Much as Nomura may quibble with Wells Fargo’s handling of the allegedly defective Mortgage
Loans, the only contractual duties Nomura has identified in its Complaint and brief are ones as to
which Wells Fargo’s conduct was a protected exercise of judgment. Thus, none of the
provisions Nomura now cites ameliorate its defective pleading.
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The PSA requires Wells Fargo to “supervise, monitor and oversee” Ocwen’s servicing of
the Mortgage Loans in accordance with the PSA’s requirements. PSA, § 4.01. With respect to
delinquent and defaulted Mortgage Loans, the PSA requires Ocwen to use “reasonable efforts to
foreclose upon or otherwise comparably convert the ownership of properties,” or to charge-off
the Mortgage Loans if it “reasonably believe[d]” that foreclosure or other action would not
increase the recovery. PSA, § 3.09(a). Although Nomura now attempts improperly to shift the
burden on Wells Fargo to identify provisions within the PSA that limited Wells Fargo’s duties, in
fact, the PSA specifically states that “[e]ach of the Depositor, the Servicers and the Master
Servicer shall be liable in accordance herewith only to the extent of the obligations specifically
imposed upon and undertaken by it herein.” PSA, § 7.01.
Under New York law, Nomura’s allegations cannot expand Wells Fargo’s duties beyond
what is set forth in the contract. “[T]he rights and duties of the parties must be determined by the
terms of the contract annexed to the complaint, and not by the plaintiff’s characterization or
construction thereof in his pleading.… Therefore, insofar as plaintiffs’ allegations as to the legal
effect of the annexed written agreement are at variance with or tend to improperly enlarge upon
the terms thereof, such allegations must be disregarded.” Miglietta v. Kennecott Copper Corp.,
25 A.D.2d 57, 57-58, 266 N.Y.S.2d 936, 937 (1st Dep’t 1966) (citation omitted). Nomura’s
reading of the PSA seeks to “enlarge upon” the obligations placed on Wells Fargo and Ocwen,
and must be rejected. See also U.S. Bank Natl. Assoc. v. Countrywide Home Loans, Inc., 2013
NY Slip Op 31842(U), 2013 N.Y. Misc. LEXIS 3534, at *9-10 (Sup. Ct. N.Y. County May 29,
2013) (stating that the plaintiff’s bare legal conclusion that the contract supported its theory of
the case was not entitled to deference). Accordingly, the scope of Wells Fargo’s (and Ocwen’s)
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obligations should be determined by the contract language and not, as Nomura suggests,
unspecified “expert testimony at trial.” Opp. Br. at 11.
Absent any duty evident in the contract itself, Nomura’s Complaint amounts to a demand
that this Court rewrite the PSA to create an otherwise absent duty to investigate. Courts,
however, may not “rewrite the contract and supply a specific obligation the parties themselves
did not spell out.” Tonking v. Port. Auth. of NY & N.J., 3 N.Y.3d 486, 490 (2004); see also Flag
Wharf, Inc. v. Merrill Lynch Capital Corp., 40 A.D.3d 506, 507, 836 N.Y.S.2d 406, 406 (1st
Dep’t 2007) (“Courts will not rewrite contracts that have been negotiated between sophisticated,
counseled commercial entities.”).
Finally, Nomura’s generic allegations of “systemic” servicing failures cannot save its
pleading. Opp. Br. at 13. Allegations regarding a defendant’s policy or practices with respect to
RMBS trusts in the abstract are insufficient to establish standing with respect to specific trusts
because “[the trustee’s] alleged misconduct must be proved loan-by-loan and trust-by-trust. For
example, whether [the seller] breached its obligations under the governing agreements (thus
triggering [the trustee]’s duty to act) requires examining its conduct with respect to each trust.”
Ret. Bd. of the Policemen’s Annuity & Benefit Fund of the City of Chicago v. Bank of N.Y.
Mellon, Nos. 13-1776-cv, 13-1777-cv, 2014 U.S. App. LEXIS 24264, at *21 (2d Cir. Dec. 23,
2014). Nomura’s allegation that Wells Fargo and Ocwen “have been subject to governmental
actions” (Opp. Br. at 14)—not tied to the Trust or any particular Mortgage Loan at issue in this
case—is exactly the type of generic allegation that is insufficient to allege a specific breach of a
specific obligation regarding a specific trust.
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2. Nomura Fails to Allege That Wells Fargo Had Knowledge
of Nomura’s Breaches
Nomura mistakenly relies on Policemen’s Annuity and Benefit Fund of the City of
Chicago v. Bank of Am., NA, 943 F. Supp. 2d 428 (S.D.N.Y. 2013) to argue that its Complaint
contains sufficient allegations to infer that Wells Fargo, by supervising, monitoring and
overseeing Ocwen in accordance with Accepted Master Servicing Practices, would have had
actual knowledge of breaches of Representations and Warranties. See Opp. Br. at 16-18.
Policemen’s Annuity is inapposite because it involved a suit brought by certificate holders of
mortgage-backed securities against trustees—not master servicers—alleging a failure by the
trustees to provide notice to certificate holders of breaches of representations and warranties.
A more apt analogy is the recent case U.S. Bank v. Citigroup, 2014 U.S. Dist. LEXIS
169160 (S.D.N.Y. Nov. 14, 2014). That case analyzed allegations against a master servicer and
sub-servicer5 for failure to notify the trustee of breaches of representations and warranties it
allegedly discovered during the course of its master servicing and sub-servicing duties. Similar
to Nomura, the U.S. Bank plaintiff alleged that, “during the performance of [defendant’s] duties
as Master Servicer and Sub-Servicer of the relevant loans, [the Master Servicer or Sub-Servicer]
likely became aware—or should have become aware—of breaches of [representations and
warranties] that materially adversely affected the value of the related Mortgage Loans.” Id. at
*22-23 (internal quotation marks omitted). The U.S. Bank plaintiff, just like Nomura, claimed
that the Master Servicer’s and Sub-Servicer’s responsibilities included “servicing delinquent or
defaulted loans,” “performing[] loan modifications,” and “receiv[ing] certain information due to
a borrower’s bankruptcy.” Id. at *23 n. 12.
5
A sub-servicer is functionally equivalent to a servicer.
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The U.S. Bank court dismissed the complaint for failure to state a claim, rejecting
plaintiff’s allegations as being “couched in speculative language concerning whether [the Master
Servicer or Sub-Servicer] actually discovered any breaches, and thus whether its obligations
were triggered under the Agreements at all.” Id. at *24. It went on to conclude that plaintiff’s
allegations “merely provide[d] facts supporting the responsibilities [the Master Servicer or Sub-
Servicer] undertook and conclusorily allege[d] that these tasks should have alerted [the Master
Servicer or Sub-Servicer] that the alleged breaches exist[ed].” Id. at *24-25. Ultimately, the
court held:
Plaintiff does not provide any factual support for how these responsibilities
caused or enabled [the Master Servicer or Sub-Servicer] to discover these
breaches. Even if [the Master Servicer or Sub-Servicer] did learn additional
information in the course of modifying or servicing the loans, Plaintiff alleges no
facts to indicate that [the Master Servicer or Sub-Servicer] should have known
that this information constituted a breach of [representations and warranties], or
even that this information concerned an initial misrepresentation to [the Seller]
before the loans were securitized.
Id. at *25 (emphasis added); see also Citigroup Mortg. Loan Trust 2007-AMC3 v. Citigroup
Global Mkts. Realty Corp., 13 Civ. 2843 (GBD), 2014 U.S. LEXIS 47252, at *18-19 (S.D.N.Y.
Mar. 31, 2014) (dismissing claim where plaintiff “failed to allege sufficient, non-speculative
facts to support its assertion” that defendant “discovered” any breaches of representations and
warranties).
Here too, Nomura’s Complaint “pleads no facts regarding how [the Master Servicer, in
this case, Wells Fargo] could have differentiated between (i) a normal occurrence of default due
to an individual’s change in financial circumstances and (ii) a breach of [representations and
warranties] that was in existence following the securitization of the loans.” U.S. Bank v.
Citigroup, 2014 U.S. Dist. LEXIS 169160, at *25 (emphasis added). Therefore, Nomura’s claim
regarding Wells Fargo’s failure to notify should also be dismissed.
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3. Neither Equity Nor Economics Permit Nomura to Shield Itself From
Its Misbehavior by Asserting Rights That Belong Solely to Others
Nomura’s argument that it has standing to pursue its claims against Wells Fargo, even
though the Trustee and the Certificateholders are the sole beneficiaries of the Master Servicer’s
obligations, misapprehends the plain language of Section 4.02 of the PSA. See Opp. Br. at 15-
16. Nomura argues that this language pertains solely to the ability to terminate the Servicer and
does not apply to the Agreement beyond Section. 4.02. Id. That argument is flatly wrong. The
language at issue reads:
The Master Servicer, for the benefit of the Trustee and the Certificateholders,
shall enforce the obligations of the Servicers under this Agreement and, … the
Master Servicer … shall, in the event that a Servicer fails to perform its
obligations in accordance with this Agreement …, subject to this Section [and]
Article VIII …, terminate the rights and obligations of such Servicer hereunder …
in accordance with the provisions of Article VIII.
PSA, § 4.02 (emphasis added). The phrase “under this Agreement” unambiguously identifies the
rights and obligations being addressed as being all of the rights and obligations under the
Agreement, not merely those limited to Section 4.02. The second half of the sentence, opening
with the phrase “the Master Servicer shall,” refers to a different right, one that only the Master
Servicer can exercise. Thus, Nomura’s interpretation is belied by the plain language of the PSA.
See, e.g., Asset Securitization Corp. v. Orix Capital Mkts., LLC, 12 A.D.3d 215, 215, 784
N.Y.S.2d 513, 513-14 (1st Dep’t 2004) (holding that RMBS depositor’s status as a contractual
party to PSA did not grant it authority to sue servicer, as certificateholders’ representative, for
breaches of the servicing obligations in the PSA).6
6
Similarly, Nomura’s efforts to distinguish Wells Fargo’s cases are misplaced. In Quadrant Structured
Prods. Co. Ltd. v. Vertin, 23 N.Y.3d 549 (2014), the Court of Appeals concluded that, where a no-action provision
specifically named one type of claim to be barred (those based on the contract), other types of claims (those based in
common law) were not barred, because, inter alia “if parties to a contract omit terms—particularly, terms that are
readily found in other, similar contracts—the inescapable conclusion is that the parties intended the omission.”
Nomura’s effort to distinguish Ambac Assurance Corp. v. EMC Mortg. LLC, 121 A.D.3d 514, 519, 995 N.Y.S.2d
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Nomura’s alternative argument, that the PSA cannot mean what it says because such a
reading would give Wells Fargo “no incentive … to properly master service the Mortgage
Loans” should be rejected outright. Opp. Br. at 16. Once again, Nomura ignores that there are
multiple parties to this PSA, and so there is no inherent implausibility that certain provisions are
explicitly for the benefit of some parties and not others. Section 4.02 is explicitly “for the
benefit of the Trustee and the Certificateholders” and they are the entities that have standing to
assert claims for violations of that section, not Nomura. Wells Fargo is not interpreting the
contract to “preclude parties to the contract from enforcing its provisions,” but rather to preclude
Nomura from enforcing provisions that specifically exclude such enforcement. Opp. Br. at 16.
The best evidence of the meaning of a contract is the words the parties used, especially in a case
like this, involving a highly detailed contract among sophisticated market participants; the parties
are understood to have meant what they wrote. See Vermont Teddy Bear Co. v. 538 Madison
Realty Co., 1 N.Y.3d 470, 475 (2004). “[L]ong-standing equitable principles” (Opp. Br. at 16)
do not support a different result, since equity denies relief to those who come before the Court
with unclean hands. It is Nomura that is seeking a windfall here, or at a minimum a shield from
its own malfeasance, by enforcing for its own benefit a right belonging to another. See Amarant
ex rel. Mercury Beach-Maid v D’Antonio, 197 A.D.2d 432, 434, 602 N.Y.S.2d 837, 838 (1st
(continued…)
545, 549 (1st Dep’t 2014) actually serves to make Wells Fargo’s point. As Nomura admits, the Court in that case
found that the rights at issue had been exclusively vested in another party, by the terms of the contract.
The PSA
here similarly states that the obligations Nomura is seeking to enforce run solely to the benefit of the Trustee and
Certificateholders. Thus, these rights never belonged to Nomura.
The one case cited by Nomura in support of its argument, LaSalle Bank N.A. v. Nomura Asset Capital
Corp., 47 A.D.3d 103, 846 N.Y.S.2d 95 (1st Dep’t 2007), is entirely inapposite. The LaSalle Court noted that “[t]he
operative analysis” in that matter, which “both sides recognize[d], [was] a mitigation of damages approach.” Id. at
107. No mention is made of the standing issue that Wells Fargo is raising, based on the specific language in these
parties’ PSA. Moreover, mitigation is an obligation that attaches to plaintiffs, it has no application to Wells Fargo, a
defendant.
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Dep’t 1993) (“It is an ancient maxim that he who comes to equity must come with clean
hands.”); Weiss v Herlihy, 23 A.D. 608, 614, 49 N.Y.S. 81, 86 (1st Dep’t 1897) (“[H]e who
comes into equity must come with clean hands; or, as it is otherwise stated, he that hath
committed iniquity shall not have equity.”).
4. Nomura’s Claim to an Evergreen Statute of Limitation is Baseless
Under New York law, the statute of limitations for breach of contract is six years from
the time of breach. CPLR 213(2). A cause of action for breaches of representations and
warranties accrues when those representations and warranties are made. ACE Sec. Corp. v. DB
Structured Prods., Inc., 112 A.D.3d 522, 523, 977 N.Y.S.2d 229, 231 (1st Dep’t 2013). Thus, if
Nomura breached its Representations and Warranties regarding the Mortgage Loans, it did so
when the Trust closed. As Master Servicer of this pool of defective Mortgage Loans, Wells
Fargo’s alleged duties relating to these defective loans, in addition to its duty to provide prompt
notice, would have been triggered then as well. Moreover, Nomura has alleged, the Mortgage
Loans began to experience delinquencies “nearly immediately” after closing. Compl. ¶ 26.
Therefore, under Nomura’s theory that Wells Fargo should have investigated delinquent loans
for breaches of Representations and Warranties, if Nomura’s pleadings are accepted as true, the
statute of limitations also began to run “nearly immediately” after the Trust closed.
Seeing that its own theories have rendered some or all of its claims against Wells Fargo
time-barred, Nomura seeks to mischaracterize Wells Fargo’s alleged breaches as “continuing.”
Opp. Br. at 18. This ignores the black letter law. Even under Nomura’s blunderbuss approach to
alleging knowledge, Nomura must accept that each loan became delinquent, and Wells Fargo
supposedly became aware of that problem, at a specific point in time. Wells Fargo’s alleged
failure to comply with the PSA at that moment was the breach, and started the statute of
limitations running. While the impropriety of Nomura’s mode of pleading is highlighted by its
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total failure, and ultimate inability, to identify these events, that failure does not alter the fact that
the statute of limitations for each allegation in Nomura’s complaint began at an ascertainable
time, and therefore ran out at an ascertainable time. Nomura’s theory would grant it an
evergreen statute of limitations contrary to New York law. See Bayridge Air Rights, Inc. v.
Blitman Const. Corp., 80 N.Y.2d 777, 779-80 (1992) (refusing to adopt contractual interpretation
that would “extend the limitations period to an indefinite date in the future in contravention of
the six-year maximum provided by the statute”).
B. Nomura Cannot Recover on Claims Against Wells Fargo Because Nomura’s
Breaches Preceded, And Were The But-For Cause of The Breaches Nomura
Alleges
Under New York law, a party that has breached a contract may not sue others for
subsequent breaches. See cases cited in MTD Br. at 8-9. Any Representations and Warranties
that Nomura breached are inextricably linked to the obligations that Nomura claims Wells Fargo
failed to meet, and so Nomura’s conduct forms an absolute bar to its claims.
Nomura proposes to escape this well-settled rule by arguing that the obligations Wells
Fargo allegedly breached were “independent” from Nomura’s broken promises. Opp. Br. at 7-9.
This argument has no basis in fact or law. For purposes of this motion, Nomura does not dispute
the fundamental facts that bar its claims against Wells Fargo. Nomura admits that it “conveyed
the Mortgage Loans to the Trust.” Opp. Br. at 9 n. 7. And, while Nomura takes pains not to
state it outright, Nomura’s Complaint “assum[es] that there is [] validity” to HSBC’s repurchase
demands, predicated on Nomura’s transfer of the loans having been in violation of Nomura’s
Representations and Warranties. Compl. ¶8. As set out in Wells Fargo’s initial brief, “[i]t is
clear that one who breaches a contract may not seek to enforce other provisions of that contract
to his or her benefit.” Onex Food Servs., Inc. v. Grieser, Nos. 93 Civ. 0278 (DC), 94 Civ.
3063(DC), 1996 U.S. Dist. LEXIS 2797, at *16 (S.D.N.Y. Mar. 11, 1996). Here, because
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Nomura’s own breaches were a necessary and but-for cause of the conduct that Nomura alleges
as the basis for its claims, Nomura cannot recover. See MTD Br. at 8-9.
The case on which Nomura primarily relies, Pfizer, Inc. v. Stryker Corp., 348 F. Supp. 2d
131, 147 (S.D.N.Y. 2004), makes clear that the dependence or independence of contractual
promises is a matter of contract interpretation, but Nomura barely references any of the actual
terms of the PSA to support its arguments.7 Opp. Br. at 7-10. Nomura’s effort to analogize the
facts of this case to those at issue in Pfizer is unconvincing; an analysis of the PSA shows that
Wells Fargo’s obligation to notify Nomura that the Representations and Warranties had been
breached was dependant on Nomura’s having made those Representations and Warranties in the
first place. First, the structure of the PSA, unlike the structure of the agreement at issue in Pfizer,
supports finding these obligations are dependant. The Representations and Warranties that
Nomura allegedly breached are made by Nomura to Wells Fargo, among others, in Section
2.03(d). The obligation to give notice appears in Section 2.03(e), which immediately follows,
and explicitly references Nomura’s promises in Section 2.03(d). Read together, it is clear that
part of the consideration that Wells Fargo received, in exchange for its agreement to take on the
Master Servicer role, was that Nomura would materially comply with its Representations and
Warranties that the loans transferred into the Trust would be conforming. Second, as a matter of
logic, absent Nomura’s misconduct, the objects of Wells Fargo’s alleged breach, the improperly
transferred loans, would not have been part of the Trusts to begin with. Thus, Wells Fargo’s
duty to inform the parties of any breach of Nomura’s Representations and Warranties with
7
While Nomura notes Pfizer’s reliance on a 1919 Court of Appeals case, Rosenthal Paper Co. v Natl.
Folding Box & Paper Co., 226 N.Y. 313 (1919), it fails to note Pfizer’s equal reliance on a much more current
Second Circuit decision, Ginett v Computer Task Group, 962 F.2d 1085, 1098 (2d Cir 1992). See Pfizer at n. 105.
Ginnett notably holds that “a contract will not be regarded as severable unless (1) the parties’ performances can be
apportioned into corresponding pairs of partial performances, and (2) the parts of each pair can be treated as agreed
equivalents.” This test actually highlights the dependent nature of Wells Fargo’s notice obligations.
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regards to those loans inherently depended on Nomura having breached its Representations and
Warranties in the first place.
Nomura attempts to escape this plain language reading of the PSA by misconstruing
Wells Fargo’s argument. Since Wells Fargo’s prompt notice obligation would only arise in “the
event of a potential breach by Nomura of its representations and warranties,” Nomura would
have this Court conclude that the provision would be rendered a nullity if Nomura were barred
from suing for breach of that prompt notice obligation. Opp. Br. at 10. The Court should reject
this simplistic reading. The cases cited by Wells Fargo do not hold that Nomura’s breach
excuses Wells Fargo’s performance but rather that Nomura’s breach precludes Nomura from
enforcing any alleged breach of contract against Wells Fargo. See Guardian Music Corp. v.
James W. Guercio Enters., Inc., 459 F. Supp. 2d 216, 223 (S.D.N.Y. 2006) (“It is black-letter
law that ‘[a] party to a contract who is already personally in default cannot, as a general principle
… maintain a suit for its breach, even if the other party subsequently breaches the contract as
well [since] a contracting party cannot benefit from its own breach.’”), citing 23 Williston on
Contracts § 63:8 (4th ed. 2002), aff’d, 271 F. App’x 119 (2d Cir. 2008) (emphasis added); see
also Greenspan v. Amsterdam, 145 A.D.2d 535, 536, 536 N.Y.S.2d 90, 91 (2d Dep’t 1988)
(defendant’s breach of contract precluded it from recovering damages under the contract), citing
22 N.Y. Jur. 2d, Contracts, § 379; 28 N.Y. Prac., Contract Law § 17:12 (2006) (“A party who
materially breaches a contract may not seek to enforce other provisions of that contract.”)
(emphasis added).
Wells Fargo is not arguing that the notice provisions of the PSA are unenforceable, but
rather that Nomura has no right to enforce those provisions because Nomura’s alleged breaches
are a predicate to Nomura’s claims. This is the legal, logical and necessary consequence of
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Nomura’s violation of its own obligations, upon which, contrary to Nomura’s argument, Wells
Fargo’s obligations depended. Wells Fargo may well have had an obligation to notify all of the
other parties upon discovery of Nomura’s breaches of its Representations and Warranties under
Section 2.03(e). But, if Wells Fargo failed in that duty (it did not), such a failure could be
actionable only by those other parties, subject to the terms and conditions of the PSA, not by
Nomura.8
CONCLUSION
For the foregoing reasons, Wells Fargo respectfully requests the Court to dismiss the
Complaint against Wells Fargo in its entirety with prejudice.
Dated: January 30, 2015 Respectfully Submitted
/s/ Howard F. Sidman
Preview
FILED: NEW YORK COUNTY CLERK 01/30/2015 06:36 PM INDEX NO. 650337/2013 NYSCEF DOC. NO. 108 RECEIVED NYSCEF: 01/30/2015 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK NOMURA HOME EQUITY LOAN, INC., HOME EQUITY LOAN TRUST, SERIES 2007-2 by HSBC BANK USA, NATIONAL ASSOCIATION, as Trustee, Index No. 650337/2013 (Friedman, J.) Plaintiff, Oral Argument is Requested v. NOMURA CREDIT & CAPITAL, INC., Defendant. NOMURA CREDIT & CAPITAL, INC., Third-Party Plaintiff, v. WELLS FARGO BANK, N.A. and OCWEN LOAN SERVICING, LLC, Third-Party Defendants. REPLY MEMORANDUM OF LAW IN SUPPORT OF THIRD-PARTY DEFENDANT WELLS FARGO BANK N.A.’S MOTION TO DISMISS JONES DAY Jayant W. Tambe Howard F. Sidman I-Heng Hsu Kristen R. Vogel 222 East 41st Street New York, New York 10017 Tel: (212) 326-3939 TABLE OF CONTENTS Page PRELIMINARY STATEMENT ................................................................................................... 1 ARGUMENT ................................................................................................................................. 3 I. NOMURA CANNOT SAVE ITS FLAWED CONTRACT CLAIM................................ 3 A. Nomura Has Failed to State a Claim Against Wells Fargo as Master Servicer .................................................................................................................. 3 1. Nomura Cannot Identify Any Obligation That Wells Fargo Supposedly Breached ................................................................................. 3 2. Nomura Fails to Allege That Wells Fargo Had Knowledge of Nomura’s Breaches................................................................................ 6 3. Neither Equity Nor Economics Permit Nomura to Shield Itself From Its Misbehavior by Asserting Rights That Belong Solely to Others ......................................................................................................... 8 4. Nomura’s Claim to an Evergreen Statute of Limitation is Baseless ........ 10 B. Nomura Cannot Recover on Claims Against Wells Fargo Because Nomura’s Breaches Preceded, And Were The But-For Cause of The Breaches Nomura Alleges.................................................................................... 11 CONCLUSION ............................................................................................................................ 14 -i- TABLE OF AUTHORITIES Page CASES ACE Sec. Corp. v. DB Structured Prods., Inc., 112 A.D.3d 522, 977 N.Y.S.2d 229 (1st Dep’t 2013) ............................................................10 Amarant ex rel. Mercury Beach-Maid v D’Antonio, 197 A.D.2d 432, 602 N.Y.S.2d 837 (1st Dep’t 1993) ..............................................................9 Ambac Assurance Corp. v. EMC Mortg. LLC, 121 A.D.3d 514, 995 N.Y.S.2d 545 (1st Dep’t 2014) ...............................................................8 Asset Securitization Corp. v. Orix Capital Mkts., LLC, 12 A.D.3d 215, 784 N.Y.S.2d 513 (1st Dep’t 2004) ................................................................8 Bayridge Air Rights, Inc. v. Blitman Const. Corp., 80 N.Y.2d 777 (1992) .............................................................................................................11 Citigroup Mortg. Loan Trust 2007-AMC3 v. Citigroup Global Mkts. Realty Corp., 13 Civ. 2843 (GBD), 2014 U.S. LEXIS 47252 (S.D.N.Y. Mar. 31, 2014) ..............................7 Connoni v. Edwards Angell Palmer & Dodge LLP, No. 601295/09, 2012 WL 3812621 (Sup. Ct. N.Y. County. Aug. 29, 2012) .........................14 Flag Wharf, Inc. v. Merrill Lynch Capital Corp., 40 A.D.3d 506, 836 N.Y.S.2d 406 (1st Dep’t 2007) ................................................................5 Ginett v Computer Task Group, 962 F.2d 1085 (2d Cir 1992) ...................................................................................................12 Greenspan v. Amsterdam, 145 A.D.2d 535, 536 N.Y.S.2d 90 (2d Dep’t 1988) ...............................................................13 Guardian Music Corp. v. James W. Guercio Enters., Inc., 459 F. Supp. 2d 216 (S.D.N.Y. 2006), aff’d, 271 F. App’x 119 (2d Cir. 2008) .....................13 LaSalle Bank N.A. v. Nomura Asset Capital Corp., 47 A.D.3d 103, 846 N.Y.S.2d 95 (1st Dep’t 2007) ..................................................................9 Miglietta v. Kennecott Copper Corp., 25 A.D.2d 57, 266 N.Y.S.2d 936 (1st Dep’t 1966) ...................................................................4 Onex Food Servs., Inc. v. Grieser, Nos. 93 Civ. 0278 (DC), 94 Civ. 3063(DC), 1996 U.S. Dist. LEXIS 2797 (S.D.N.Y. Mar. 11, 1996) .......................................................................................................11 -i- Pfizer, Inc. v. Stryker Corp., 348 F. Supp. 2d 131 (S.D.N.Y. 2004) .....................................................................................12 Policemen’s Annuity and Benefit Fund of the City of Chicago v. Bank of Am., NA, 943 F. Supp. 2d 428 (S.D.N.Y. 2013) .......................................................................................6 Quadrant Structured Prods. Co. Ltd. v. Vertin, 23 N.Y.3d 549 (2014) ...............................................................................................................8 Ret. Bd. of the Policemen’s Annuity & Benefit Fund of the City of Chicago v. Bank of N.Y. Mellon, Nos. 13-1776-cv, 13-1777-cv, 2014 U.S. App. LEXIS 24264 (2d Cir. Dec. 23, 2014) .........................................................................................................................................5 Rosenthal Paper Co. v Natl. Folding Box & Paper Co., 226 N.Y. 313 (1919) ...............................................................................................................12 Tonking v. Port. Auth. of NY & N.J., 3 N.Y.3d 486 (2004) .................................................................................................................5 U.S. Bank, N.A. v. Citigroup Global Mkts. Realty Corp., 13 Civ. 6989 (GDB), 2014 U.S. Dist. LEXIS 169160 (S.D.N.Y. Nov. 14, 2014) ..............................................................................................................................1, 2, 6, 7 U.S. Bank Natl. Assoc. v. Countrywide Home Loans, Inc., 2013 NY Slip Op 31842(U), 2013 N.Y. Misc. LEXIS 3534 (Sup. Ct. N.Y. County May 29, 2013) ...............................................................................................................4 Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470 (2004) .................................................................................................................9 Weiss v Herlihy, 23 A.D. 608, 49 N.Y.S. 81 (1st Dep’t 1897) ..........................................................................10 STATUTES CPLR 213(2) ..................................................................................................................................10 CPLR 3211(a)(1) .............................................................................................................................1 CPLR 3211(a)(5) .............................................................................................................................1 CPLR 3211(a)(7) .............................................................................................................................1 OTHER AUTHORITIES 22 N.Y. Jur. 2d, Contracts, § 379...................................................................................................13 23 Williston on Contracts § 63:8 (4th ed. 2002) ...........................................................................13 -ii- 28 N.Y. Prac., Contract Law § 17:12 (2006) ................................................................................13 -iii- Third-Party Defendant Wells Fargo Bank, N.A. (“Wells Fargo”) respectfully submits this Reply Memorandum of Law in support of its motion, pursuant to Civil Practice Law and Rules (“CPLR”) 3211(a)(1), (5) and (7), to dismiss with prejudice the third-party complaint filed on August 27, 2014 (the “Complaint” or “Compl.”) by Third-Party Plaintiff Nomura Credit & Capital Inc. (“Nomura”) in connection with the residential mortgage-backed securitization, Nomura Home Equity Loan, Inc., Series 2007-2 (the “Trust”).1 PRELIMINARY STATEMENT Nomura has based its opposition brief on a fundamental misstatement of Nomura’s pleading obligation as a (third-party) plaintiff. Nomura stands the law on its head when it contends that “Wells Fargo has failed to identify any provision in the PSA establishing, as a matter of law, that its obligations … are as limited as it contends.” Opp. Br. at 10. Settled New York law squarely makes it Nomura’s burden to identify the purported duties that Nomura alleges have been breached. Nomura does not identify any specific obligations in the PSA that impose a duty on Wells Fargo as Master Servicer, or upon Ocwen as Servicer, to investigate defaulting loans for compliance with the Representations and Warranties made by Nomura.2 That is because the PSA does not impose any such obligations. See infra at I.A.1. Similarly, Nomura’s opposition ignores its burden to plead any facts that Wells Fargo had knowledge of alleged specific servicing failures. See infra at I.A.2. Not surprisingly, the only New York court to have addressed Nomura’s misguided theory of liability has rejected it in toto. In U.S. Bank, N.A. v. Citigroup Global Mkts. Realty Corp., 13 1 All capitalized terms not defined herein have the meanings given in Wells Fargo’s Memorandum of Law in support of its motion, dated November 5, 2014 (“MTD Br.”). References to “Opp. Br.” are to Nomura’s Opposition to the motion to dismiss, dated December 23, 2014. 2 Nomura has withdrawn its claims against Wells Fargo as Custodian. Opp. Br. at 2, n.4. -1- Civ. 6989 (GDB), 2014 U.S. Dist. LEXIS 169160 (S.D.N.Y. Nov. 14, 2014), Judge Daniels recently dismissed similar allegations that were “couched in speculative language concerning whether [the Master Servicer or Sub-Servicer] actually discovered any breaches, and thus whether its obligations were triggered under the Agreements at all.” Id. at *24. The Amended Complaint merely provides facts supporting the responsibilities [the Master Servicer or Sub-Servicer] undertook and conclusorily alleges that these tasks should have alerted [the Master Servicer or Sub-Servicer] that the alleged breaches exist; Plaintiff does not provide any factual support for how these responsibilities caused or enabled [the Master Servicer or Sub-Servicer] to discover these breaches. Id. at *24-25 (emphasis added).3 The balance of Nomura’s arguments amount to little more than an effort to rewrite New York law and alter the terms of the PSA to somehow grant Nomura the capacity to pursue its claims (see infra at I.A.3, I.B) and to render applicable statutes of limitation inapplicable to Nomura’s claims. See infra at I.A.4. Those arguments necessarily must fail and Nomura’s Complaint must be dismissed.4 3 The U.S. Bank decision was not addressed in Wells Fargo’s opening brief because it was issued after Wells Fargo filed its motion. However, the decision was issued over a month before Nomura filed its opposition brief. Nomura’s failure to address the U.S. Bank decision is telling. 4 Although the Stovall Affirmation mischaracterizes the conversations between counsel for Wells Fargo and Nomura discussing, at Wells Fargo’s suggestion, a way to address these motions in an efficient manner, there is no use in further debate on the issue.Wells Fargo is committed to proceeding with resolving these improper claims however the Court deems appropriate. -2- ARGUMENT I. NOMURA CANNOT SAVE ITS FLAWED CONTRACT CLAIM A. Nomura Has Failed to State a Claim Against Wells Fargo as Master Servicer 1. Nomura Cannot Identify Any Obligation That Wells Fargo Supposedly Breached Contrary to Nomura’s repeated claim (Opp Br. at 10-13), the PSA imposed no duty on Wells Fargo to investigate defaulted mortgage loans for breaches of Representations and Warranties. Instead, Nomura impermissibly attempts to expand the duties imposed upon Wells Fargo as Master Servicer by relying on language in the PSA that requires Wells Fargo to perform its obligations in accordance with “Accepted Master Servicing Practices.” Nomura’s position is based on a gross misreading of the PSA. Opp. Br. at 10-12. This provision does not expand Wells Fargo’s obligations. Instead, the PSA states that “[i]n performing its obligations hereunder, the Master Servicer shall act in a manner consistent with Accepted Master Servicing Practices.” PSA, § 4.01 (emphasis added). This language merely identifies the standard by which Wells Fargo is to perform its nominated contractual obligations “hereunder.” Nomura also cannot manufacture a duty merely because Wells Fargo supposedly had discretion to “determine a proper course to maximize value.” Opp. Br. at 11-13. The PSA releases Wells Fargo from “ any liability … for taking any action or for refraining from taking any action in good faith pursuant to this Agreement, or for errors in judgment.” PSA, § 7.04(a). Much as Nomura may quibble with Wells Fargo’s handling of the allegedly defective Mortgage Loans, the only contractual duties Nomura has identified in its Complaint and brief are ones as to which Wells Fargo’s conduct was a protected exercise of judgment. Thus, none of the provisions Nomura now cites ameliorate its defective pleading. -3- The PSA requires Wells Fargo to “supervise, monitor and oversee” Ocwen’s servicing of the Mortgage Loans in accordance with the PSA’s requirements. PSA, § 4.01. With respect to delinquent and defaulted Mortgage Loans, the PSA requires Ocwen to use “reasonable efforts to foreclose upon or otherwise comparably convert the ownership of properties,” or to charge-off the Mortgage Loans if it “reasonably believe[d]” that foreclosure or other action would not increase the recovery. PSA, § 3.09(a). Although Nomura now attempts improperly to shift the burden on Wells Fargo to identify provisions within the PSA that limited Wells Fargo’s duties, in fact, the PSA specifically states that “[e]ach of the Depositor, the Servicers and the Master Servicer shall be liable in accordance herewith only to the extent of the obligations specifically imposed upon and undertaken by it herein.” PSA, § 7.01. Under New York law, Nomura’s allegations cannot expand Wells Fargo’s duties beyond what is set forth in the contract. “[T]he rights and duties of the parties must be determined by the terms of the contract annexed to the complaint, and not by the plaintiff’s characterization or construction thereof in his pleading.… Therefore, insofar as plaintiffs’ allegations as to the legal effect of the annexed written agreement are at variance with or tend to improperly enlarge upon the terms thereof, such allegations must be disregarded.” Miglietta v. Kennecott Copper Corp., 25 A.D.2d 57, 57-58, 266 N.Y.S.2d 936, 937 (1st Dep’t 1966) (citation omitted). Nomura’s reading of the PSA seeks to “enlarge upon” the obligations placed on Wells Fargo and Ocwen, and must be rejected. See also U.S. Bank Natl. Assoc. v. Countrywide Home Loans, Inc., 2013 NY Slip Op 31842(U), 2013 N.Y. Misc. LEXIS 3534, at *9-10 (Sup. Ct. N.Y. County May 29, 2013) (stating that the plaintiff’s bare legal conclusion that the contract supported its theory of the case was not entitled to deference). Accordingly, the scope of Wells Fargo’s (and Ocwen’s) -4- obligations should be determined by the contract language and not, as Nomura suggests, unspecified “expert testimony at trial.” Opp. Br. at 11. Absent any duty evident in the contract itself, Nomura’s Complaint amounts to a demand that this Court rewrite the PSA to create an otherwise absent duty to investigate. Courts, however, may not “rewrite the contract and supply a specific obligation the parties themselves did not spell out.” Tonking v. Port. Auth. of NY & N.J., 3 N.Y.3d 486, 490 (2004); see also Flag Wharf, Inc. v. Merrill Lynch Capital Corp., 40 A.D.3d 506, 507, 836 N.Y.S.2d 406, 406 (1st Dep’t 2007) (“Courts will not rewrite contracts that have been negotiated between sophisticated, counseled commercial entities.”). Finally, Nomura’s generic allegations of “systemic” servicing failures cannot save its pleading. Opp. Br. at 13. Allegations regarding a defendant’s policy or practices with respect to RMBS trusts in the abstract are insufficient to establish standing with respect to specific trusts because “[the trustee’s] alleged misconduct must be proved loan-by-loan and trust-by-trust. For example, whether [the seller] breached its obligations under the governing agreements (thus triggering [the trustee]’s duty to act) requires examining its conduct with respect to each trust.” Ret. Bd. of the Policemen’s Annuity & Benefit Fund of the City of Chicago v. Bank of N.Y. Mellon, Nos. 13-1776-cv, 13-1777-cv, 2014 U.S. App. LEXIS 24264, at *21 (2d Cir. Dec. 23, 2014). Nomura’s allegation that Wells Fargo and Ocwen “have been subject to governmental actions” (Opp. Br. at 14)—not tied to the Trust or any particular Mortgage Loan at issue in this case—is exactly the type of generic allegation that is insufficient to allege a specific breach of a specific obligation regarding a specific trust. -5- 2. Nomura Fails to Allege That Wells Fargo Had Knowledge of Nomura’s Breaches Nomura mistakenly relies on Policemen’s Annuity and Benefit Fund of the City of Chicago v. Bank of Am., NA, 943 F. Supp. 2d 428 (S.D.N.Y. 2013) to argue that its Complaint contains sufficient allegations to infer that Wells Fargo, by supervising, monitoring and overseeing Ocwen in accordance with Accepted Master Servicing Practices, would have had actual knowledge of breaches of Representations and Warranties. See Opp. Br. at 16-18. Policemen’s Annuity is inapposite because it involved a suit brought by certificate holders of mortgage-backed securities against trustees—not master servicers—alleging a failure by the trustees to provide notice to certificate holders of breaches of representations and warranties. A more apt analogy is the recent case U.S. Bank v. Citigroup, 2014 U.S. Dist. LEXIS 169160 (S.D.N.Y. Nov. 14, 2014). That case analyzed allegations against a master servicer and sub-servicer5 for failure to notify the trustee of breaches of representations and warranties it allegedly discovered during the course of its master servicing and sub-servicing duties. Similar to Nomura, the U.S. Bank plaintiff alleged that, “during the performance of [defendant’s] duties as Master Servicer and Sub-Servicer of the relevant loans, [the Master Servicer or Sub-Servicer] likely became aware—or should have become aware—of breaches of [representations and warranties] that materially adversely affected the value of the related Mortgage Loans.” Id. at *22-23 (internal quotation marks omitted). The U.S. Bank plaintiff, just like Nomura, claimed that the Master Servicer’s and Sub-Servicer’s responsibilities included “servicing delinquent or defaulted loans,” “performing[] loan modifications,” and “receiv[ing] certain information due to a borrower’s bankruptcy.” Id. at *23 n. 12. 5 A sub-servicer is functionally equivalent to a servicer. -6- The U.S. Bank court dismissed the complaint for failure to state a claim, rejecting plaintiff’s allegations as being “couched in speculative language concerning whether [the Master Servicer or Sub-Servicer] actually discovered any breaches, and thus whether its obligations were triggered under the Agreements at all.” Id. at *24. It went on to conclude that plaintiff’s allegations “merely provide[d] facts supporting the responsibilities [the Master Servicer or Sub- Servicer] undertook and conclusorily allege[d] that these tasks should have alerted [the Master Servicer or Sub-Servicer] that the alleged breaches exist[ed].” Id. at *24-25. Ultimately, the court held: Plaintiff does not provide any factual support for how these responsibilities caused or enabled [the Master Servicer or Sub-Servicer] to discover these breaches. Even if [the Master Servicer or Sub-Servicer] did learn additional information in the course of modifying or servicing the loans, Plaintiff alleges no facts to indicate that [the Master Servicer or Sub-Servicer] should have known that this information constituted a breach of [representations and warranties], or even that this information concerned an initial misrepresentation to [the Seller] before the loans were securitized. Id. at *25 (emphasis added); see also Citigroup Mortg. Loan Trust 2007-AMC3 v. Citigroup Global Mkts. Realty Corp., 13 Civ. 2843 (GBD), 2014 U.S. LEXIS 47252, at *18-19 (S.D.N.Y. Mar. 31, 2014) (dismissing claim where plaintiff “failed to allege sufficient, non-speculative facts to support its assertion” that defendant “discovered” any breaches of representations and warranties). Here too, Nomura’s Complaint “pleads no facts regarding how [the Master Servicer, in this case, Wells Fargo] could have differentiated between (i) a normal occurrence of default due to an individual’s change in financial circumstances and (ii) a breach of [representations and warranties] that was in existence following the securitization of the loans.” U.S. Bank v. Citigroup, 2014 U.S. Dist. LEXIS 169160, at *25 (emphasis added). Therefore, Nomura’s claim regarding Wells Fargo’s failure to notify should also be dismissed. -7- 3. Neither Equity Nor Economics Permit Nomura to Shield Itself From Its Misbehavior by Asserting Rights That Belong Solely to Others Nomura’s argument that it has standing to pursue its claims against Wells Fargo, even though the Trustee and the Certificateholders are the sole beneficiaries of the Master Servicer’s obligations, misapprehends the plain language of Section 4.02 of the PSA. See Opp. Br. at 15- 16. Nomura argues that this language pertains solely to the ability to terminate the Servicer and does not apply to the Agreement beyond Section. 4.02. Id. That argument is flatly wrong. The language at issue reads: The Master Servicer, for the benefit of the Trustee and the Certificateholders, shall enforce the obligations of the Servicers under this Agreement and, … the Master Servicer … shall, in the event that a Servicer fails to perform its obligations in accordance with this Agreement …, subject to this Section [and] Article VIII …, terminate the rights and obligations of such Servicer hereunder … in accordance with the provisions of Article VIII. PSA, § 4.02 (emphasis added). The phrase “under this Agreement” unambiguously identifies the rights and obligations being addressed as being all of the rights and obligations under the Agreement, not merely those limited to Section 4.02. The second half of the sentence, opening with the phrase “the Master Servicer shall,” refers to a different right, one that only the Master Servicer can exercise. Thus, Nomura’s interpretation is belied by the plain language of the PSA. See, e.g., Asset Securitization Corp. v. Orix Capital Mkts., LLC, 12 A.D.3d 215, 215, 784 N.Y.S.2d 513, 513-14 (1st Dep’t 2004) (holding that RMBS depositor’s status as a contractual party to PSA did not grant it authority to sue servicer, as certificateholders’ representative, for breaches of the servicing obligations in the PSA).6 6 Similarly, Nomura’s efforts to distinguish Wells Fargo’s cases are misplaced. In Quadrant Structured Prods. Co. Ltd. v. Vertin, 23 N.Y.3d 549 (2014), the Court of Appeals concluded that, where a no-action provision specifically named one type of claim to be barred (those based on the contract), other types of claims (those based in common law) were not barred, because, inter alia “if parties to a contract omit terms—particularly, terms that are readily found in other, similar contracts—the inescapable conclusion is that the parties intended the omission.” Nomura’s effort to distinguish Ambac Assurance Corp. v. EMC Mortg. LLC, 121 A.D.3d 514, 519, 995 N.Y.S.2d -8- Nomura’s alternative argument, that the PSA cannot mean what it says because such a reading would give Wells Fargo “no incentive … to properly master service the Mortgage Loans” should be rejected outright. Opp. Br. at 16. Once again, Nomura ignores that there are multiple parties to this PSA, and so there is no inherent implausibility that certain provisions are explicitly for the benefit of some parties and not others. Section 4.02 is explicitly “for the benefit of the Trustee and the Certificateholders” and they are the entities that have standing to assert claims for violations of that section, not Nomura. Wells Fargo is not interpreting the contract to “preclude parties to the contract from enforcing its provisions,” but rather to preclude Nomura from enforcing provisions that specifically exclude such enforcement. Opp. Br. at 16. The best evidence of the meaning of a contract is the words the parties used, especially in a case like this, involving a highly detailed contract among sophisticated market participants; the parties are understood to have meant what they wrote. See Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475 (2004). “[L]ong-standing equitable principles” (Opp. Br. at 16) do not support a different result, since equity denies relief to those who come before the Court with unclean hands. It is Nomura that is seeking a windfall here, or at a minimum a shield from its own malfeasance, by enforcing for its own benefit a right belonging to another. See Amarant ex rel. Mercury Beach-Maid v D’Antonio, 197 A.D.2d 432, 434, 602 N.Y.S.2d 837, 838 (1st (continued…) 545, 549 (1st Dep’t 2014) actually serves to make Wells Fargo’s point. As Nomura admits, the Court in that case found that the rights at issue had been exclusively vested in another party, by the terms of the contract. The PSA here similarly states that the obligations Nomura is seeking to enforce run solely to the benefit of the Trustee and Certificateholders. Thus, these rights never belonged to Nomura. The one case cited by Nomura in support of its argument, LaSalle Bank N.A. v. Nomura Asset Capital Corp., 47 A.D.3d 103, 846 N.Y.S.2d 95 (1st Dep’t 2007), is entirely inapposite. The LaSalle Court noted that “[t]he operative analysis” in that matter, which “both sides recognize[d], [was] a mitigation of damages approach.” Id. at 107. No mention is made of the standing issue that Wells Fargo is raising, based on the specific language in these parties’ PSA. Moreover, mitigation is an obligation that attaches to plaintiffs, it has no application to Wells Fargo, a defendant. -9- Dep’t 1993) (“It is an ancient maxim that he who comes to equity must come with clean hands.”); Weiss v Herlihy, 23 A.D. 608, 614, 49 N.Y.S. 81, 86 (1st Dep’t 1897) (“[H]e who comes into equity must come with clean hands; or, as it is otherwise stated, he that hath committed iniquity shall not have equity.”). 4. Nomura’s Claim to an Evergreen Statute of Limitation is Baseless Under New York law, the statute of limitations for breach of contract is six years from the time of breach. CPLR 213(2). A cause of action for breaches of representations and warranties accrues when those representations and warranties are made. ACE Sec. Corp. v. DB Structured Prods., Inc., 112 A.D.3d 522, 523, 977 N.Y.S.2d 229, 231 (1st Dep’t 2013). Thus, if Nomura breached its Representations and Warranties regarding the Mortgage Loans, it did so when the Trust closed. As Master Servicer of this pool of defective Mortgage Loans, Wells Fargo’s alleged duties relating to these defective loans, in addition to its duty to provide prompt notice, would have been triggered then as well. Moreover, Nomura has alleged, the Mortgage Loans began to experience delinquencies “nearly immediately” after closing. Compl. ¶ 26. Therefore, under Nomura’s theory that Wells Fargo should have investigated delinquent loans for breaches of Representations and Warranties, if Nomura’s pleadings are accepted as true, the statute of limitations also began to run “nearly immediately” after the Trust closed. Seeing that its own theories have rendered some or all of its claims against Wells Fargo time-barred, Nomura seeks to mischaracterize Wells Fargo’s alleged breaches as “continuing.” Opp. Br. at 18. This ignores the black letter law. Even under Nomura’s blunderbuss approach to alleging knowledge, Nomura must accept that each loan became delinquent, and Wells Fargo supposedly became aware of that problem, at a specific point in time. Wells Fargo’s alleged failure to comply with the PSA at that moment was the breach, and started the statute of limitations running. While the impropriety of Nomura’s mode of pleading is highlighted by its -10- total failure, and ultimate inability, to identify these events, that failure does not alter the fact that the statute of limitations for each allegation in Nomura’s complaint began at an ascertainable time, and therefore ran out at an ascertainable time. Nomura’s theory would grant it an evergreen statute of limitations contrary to New York law. See Bayridge Air Rights, Inc. v. Blitman Const. Corp., 80 N.Y.2d 777, 779-80 (1992) (refusing to adopt contractual interpretation that would “extend the limitations period to an indefinite date in the future in contravention of the six-year maximum provided by the statute”). B. Nomura Cannot Recover on Claims Against Wells Fargo Because Nomura’s Breaches Preceded, And Were The But-For Cause of The Breaches Nomura Alleges Under New York law, a party that has breached a contract may not sue others for subsequent breaches. See cases cited in MTD Br. at 8-9. Any Representations and Warranties that Nomura breached are inextricably linked to the obligations that Nomura claims Wells Fargo failed to meet, and so Nomura’s conduct forms an absolute bar to its claims. Nomura proposes to escape this well-settled rule by arguing that the obligations Wells Fargo allegedly breached were “independent” from Nomura’s broken promises. Opp. Br. at 7-9. This argument has no basis in fact or law. For purposes of this motion, Nomura does not dispute the fundamental facts that bar its claims against Wells Fargo. Nomura admits that it “conveyed the Mortgage Loans to the Trust.” Opp. Br. at 9 n. 7. And, while Nomura takes pains not to state it outright, Nomura’s Complaint “assum[es] that there is [] validity” to HSBC’s repurchase demands, predicated on Nomura’s transfer of the loans having been in violation of Nomura’s Representations and Warranties. Compl. ¶8. As set out in Wells Fargo’s initial brief, “[i]t is clear that one who breaches a contract may not seek to enforce other provisions of that contract to his or her benefit.” Onex Food Servs., Inc. v. Grieser, Nos. 93 Civ. 0278 (DC), 94 Civ. 3063(DC), 1996 U.S. Dist. LEXIS 2797, at *16 (S.D.N.Y. Mar. 11, 1996). Here, because -11- Nomura’s own breaches were a necessary and but-for cause of the conduct that Nomura alleges as the basis for its claims, Nomura cannot recover. See MTD Br. at 8-9. The case on which Nomura primarily relies, Pfizer, Inc. v. Stryker Corp., 348 F. Supp. 2d 131, 147 (S.D.N.Y. 2004), makes clear that the dependence or independence of contractual promises is a matter of contract interpretation, but Nomura barely references any of the actual terms of the PSA to support its arguments.7 Opp. Br. at 7-10. Nomura’s effort to analogize the facts of this case to those at issue in Pfizer is unconvincing; an analysis of the PSA shows that Wells Fargo’s obligation to notify Nomura that the Representations and Warranties had been breached was dependant on Nomura’s having made those Representations and Warranties in the first place. First, the structure of the PSA, unlike the structure of the agreement at issue in Pfizer, supports finding these obligations are dependant. The Representations and Warranties that Nomura allegedly breached are made by Nomura to Wells Fargo, among others, in Section 2.03(d). The obligation to give notice appears in Section 2.03(e), which immediately follows, and explicitly references Nomura’s promises in Section 2.03(d). Read together, it is clear that part of the consideration that Wells Fargo received, in exchange for its agreement to take on the Master Servicer role, was that Nomura would materially comply with its Representations and Warranties that the loans transferred into the Trust would be conforming. Second, as a matter of logic, absent Nomura’s misconduct, the objects of Wells Fargo’s alleged breach, the improperly transferred loans, would not have been part of the Trusts to begin with. Thus, Wells Fargo’s duty to inform the parties of any breach of Nomura’s Representations and Warranties with 7 While Nomura notes Pfizer’s reliance on a 1919 Court of Appeals case, Rosenthal Paper Co. v Natl. Folding Box & Paper Co., 226 N.Y. 313 (1919), it fails to note Pfizer’s equal reliance on a much more current Second Circuit decision, Ginett v Computer Task Group, 962 F.2d 1085, 1098 (2d Cir 1992). See Pfizer at n. 105. Ginnett notably holds that “a contract will not be regarded as severable unless (1) the parties’ performances can be apportioned into corresponding pairs of partial performances, and (2) the parts of each pair can be treated as agreed equivalents.” This test actually highlights the dependent nature of Wells Fargo’s notice obligations. -12- regards to those loans inherently depended on Nomura having breached its Representations and Warranties in the first place. Nomura attempts to escape this plain language reading of the PSA by misconstruing Wells Fargo’s argument. Since Wells Fargo’s prompt notice obligation would only arise in “the event of a potential breach by Nomura of its representations and warranties,” Nomura would have this Court conclude that the provision would be rendered a nullity if Nomura were barred from suing for breach of that prompt notice obligation. Opp. Br. at 10. The Court should reject this simplistic reading. The cases cited by Wells Fargo do not hold that Nomura’s breach excuses Wells Fargo’s performance but rather that Nomura’s breach precludes Nomura from enforcing any alleged breach of contract against Wells Fargo. See Guardian Music Corp. v. James W. Guercio Enters., Inc., 459 F. Supp. 2d 216, 223 (S.D.N.Y. 2006) (“It is black-letter law that ‘[a] party to a contract who is already personally in default cannot, as a general principle … maintain a suit for its breach, even if the other party subsequently breaches the contract as well [since] a contracting party cannot benefit from its own breach.’”), citing 23 Williston on Contracts § 63:8 (4th ed. 2002), aff’d, 271 F. App’x 119 (2d Cir. 2008) (emphasis added); see also Greenspan v. Amsterdam, 145 A.D.2d 535, 536, 536 N.Y.S.2d 90, 91 (2d Dep’t 1988) (defendant’s breach of contract precluded it from recovering damages under the contract), citing 22 N.Y. Jur. 2d, Contracts, § 379; 28 N.Y. Prac., Contract Law § 17:12 (2006) (“A party who materially breaches a contract may not seek to enforce other provisions of that contract.”) (emphasis added). Wells Fargo is not arguing that the notice provisions of the PSA are unenforceable, but rather that Nomura has no right to enforce those provisions because Nomura’s alleged breaches are a predicate to Nomura’s claims. This is the legal, logical and necessary consequence of -13- Nomura’s violation of its own obligations, upon which, contrary to Nomura’s argument, Wells Fargo’s obligations depended. Wells Fargo may well have had an obligation to notify all of the other parties upon discovery of Nomura’s breaches of its Representations and Warranties under Section 2.03(e). But, if Wells Fargo failed in that duty (it did not), such a failure could be actionable only by those other parties, subject to the terms and conditions of the PSA, not by Nomura.8 CONCLUSION For the foregoing reasons, Wells Fargo respectfully requests the Court to dismiss the Complaint against Wells Fargo in its entirety with prejudice. Dated: January 30, 2015 Respectfully Submitted /s/ Howard F. Sidman