Ambac Assurance Corp. v. Countrywide Home Loans Inc.

• Decision Date: 16 January 2020
• Docket Number: 9461N,Index 651612/10
• Citation: 118 N.Y.S.3d 13,179 A.D.3d 518
• Parties: AMBAC ASSURANCE CORPORATION, et al., Plaintiffs–Respondents, v. COUNTRYWIDE HOME LOANS INC., et al., Defendants–Appellants.
• Court: New York Supreme Court — Appellate Division

179 A.D.3d 518

118 N.Y.S.3d 13

AMBAC ASSURANCE CORPORATION, et al., Plaintiffs–Respondents,

v.COUNTRYWIDE HOME LOANS INC., et al., Defendants–Appellants.

9461N

Index 651612/10

Supreme Court, Appellate Division, First Department, New York.

ENTERED: JANUARY 16, 2020

Williams & Connolly LLP, Washington, DC (Craig D. Singer of the bar of the District of Columbia, admitted pro hac vice, of counsel), and Simpson Thacher & Bartlett LLP, New York (Joseph M. McLaughlin of counsel), for Countrywide Home Loans Inc., Country Wide Securities Corp., and Country Wide Financial Corp., appellants.

O'Melveny & Myers, LLP, New York (Jonathan Rosenberg of counsel), for Bank of America, appellant.

Quinn Emanuel Urquhart & Sullivan, LLP, New York (Kathleen M. Sullivan of counsel), for respondents.

Renwick, J.P., Richter, Oing, Singh, JJ.

Order, Supreme Court, New York County (Eileen Bransten, J.), entered January 2, 2019, which denied defendants' various pretrial motions, unanimously modified, on the law, to grant the motions by Bank of America Corp. (BAC) to sever the claims asserted against it, and to strike the jury demand on those claims, and otherwise affirmed, without costs.

The court correctly denied Countrywide's motion seeking dismissal of the fraudulent inducement claim. As relevant here, Ambac, the monoline insurer, asserts causes of action against Countrywide for: (a) breaching various representations and warranties about their loan-origination practices and the quality of the loans in the securitizations; and (b) fraudulently inducing Ambac to insure the securitizations by making precontractual misrepresentations and omissions. In a prior decision in this case ( 31 N.Y.3d 569, 81 N.Y.S.3d 816, 106 N.E.3d 1176 [2018] ), the Court of Appeals concluded that damages for Ambac's contract claims were to be measured by the repurchase protocol contained in the parties' agreements ( id. at 583–584, 81 N.Y.S.3d 816, 106 N.E.3d 1176 ). As for the fraudulent inducement claim, the Court found that the repurchase protocol was not applicable, and that damages should instead be measured "by reference to claims payments made based on nonconforming loans" ( id. at 581, 81 N.Y.S.3d 816, 106 N.E.3d 1176 ). Thus, as the motion court properly found, the Court of Appeals recognized distinct measures of damages for the fraudulent inducement claim arising separately from the contract claims.¹

While a fraudulent inducement claim can be dismissed as duplicative of a breach of contract claim if it seeks the "same damages" ( Mosaic Caribe, Ltd. v. AllSettled Group, Inc., 117 A.D.3d 421, 422–423, 985 N.Y.S.2d 33 [1st Dept. 2014] ), Countrywide has not established, as a matter of law, that the damages sought in connection with the fraud claim are the same as those sought in connection with the contract claims. Ambac has submitted an affidavit from its expert, unchallenged by Countrywide, which explains that the damages for the fraud and contract claims are "qualitatively and quantitatively distinct." The expert explains that whereas the contract damages are calculated based on the terms of the contractual repurchase protocol, the fraud damages are determined based on the portion of Ambac's claims payments that flow from nonconforming loans. Thus, according to the expert, the calculation of the fraud damages does not rely in any way on the contractual repurchase price that governs the contract damages calculation.

The expert further explains that the fraud damages differ from the contract damages because they include additional expenses incurred by Ambac that are not recoverable in contract.

In his affidavit, the expert states that he is including the revised damages calculations in a forthcoming supplemental expert report. A motion is currently pending in Supreme Court for leave to serve the new report, which presumably would contain a more detailed explanation of the differences between the contract and fraud damages. In view of the expert affidavit already submitted, and the motion practice in Supreme Court, it is premature to dismiss the fraud claim as duplicative. Thus, denial of the motion to dismiss the fraud claim, without prejudice to renewal after the conclusion of the proceedings below related to the expert affidavit is appropriate.

MBIA Ins. Corp. v. Credit Suisse Sec. [USA] LLC , 165 A.D.3d 108, 84 N.Y.S.3d 157 (1st Dept. 2018) and Financial Guar. Ins. Co. v. Morgan Stanley ABS Capital I Inc. , 164 A.D.3d 1126, 84 N.Y.S.3d 163 (1st Dept. 2018) do not require a different result. In MBIA, the court concluded that fraud damages in the form of all claims payments made were not recoverable, and that "repurchase damages" were duplicative of contract damages ( 165 A.D.3d at 113–114, 84 N.Y.S.3d 157 ). Here, Ambac does not seek to recover all claims payments made, nor does it seek repurchase damages under its fraud claim. Instead, it only seeks fraud damages based on claims payments flowing from nonconforming loans, the precise measure sanctioned by the Court of Appeals (see Ambac, 31 N.Y.3d at 581, 81 N.Y.S.3d 816, 106 N.E.3d 1176 [Ambac's fraud damages should be measured by reference to claims payments based on nonconforming loans] ).

In Financial Guar., the court merely found, on the specific facts alleged, that the fraud damages duplicated the contract damages ( 164 A.D.3d 1126, 84 N.Y.S.3d 163 ). There was no indication that the plaintiff in that case submitted an expert affidavit explaining any differences between the measures of damages sought by the fraud and contract claims. Put simply, neither MBIA nor Financial Guar. stands for the sweeping proposition that, in all residential mortgage-backed security cases, a fraudulent inducement claim brought by a monoline insurer is, as a matter of law, duplicative of contract claims based on the same nonconforming loans.

The motion court properly denied Countrywide's motion to strike Ambac's jury demand on the fraudulent inducement cause of action. Ambac's complaint repeatedly alleges that the insurance agreements were obtained through various types of fraudulent conduct. Thus, because it is clear that...