BNP Paribas Mortg. Corp. v. Bank of Am., N.A.

• Decision Date: 05 June 2012
• Docket Number: Nos. 09 Civ. 9783(RWS), 09 Civ. 9784(RWS).,s. 09 Civ. 9783(RWS), 09 Civ. 9784(RWS).
• Citation: 866 F.Supp.2d 257
• Parties: BNP PARIBAS MORTGAGE CORPORATION and BNP Paribas, Plaintiffs, v. BANK OF AMERICA, N.A., Defendant. Deutsche Bank AG, Plaintiff, v. Bank of America, N.A., Defendant.
• Court: U.S. District Court — Southern District of New York

866 F.Supp.2d 257

BNP PARIBAS MORTGAGE CORPORATION and BNP Paribas, Plaintiffs,

v.BANK OF AMERICA, N.A., Defendant.

Deutsche Bank AG, Plaintiff,

v.Bank of America, N.A., Defendant.

Nos. 09 Civ. 9783(RWS), 09 Civ. 9784(RWS).

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

June 5, 2012.

Boies Schiller & Flexner LLP, by: Robin A. Henry, Esq., Motty Shulman, Esq., Jack Wilson, Esq., Armonk, NY, for Plaintiffs BNP Paribas Mortgage Corporation and BNP Paribas.

Williams & Connolly LLP, by: William E. McDaniels, Esq., Stephen D. Andrews, Esq., Stephen P. Sorensen, Esq., Daniel M. Dockery, Esq., Katherine O'Connor, Esq., Washington, DC, for Plaintiff Deutsche Bank AG.

Munger, Tolles & Olson LLP, by: Marc T.G. Dworsky, Esq., Kristin Linsley Myles, Esq., Gregory Weingart, Esq., Richard St. John, Esq., Los Angeles, CA, King & Spalding LLP, by: Richard T. Marooney, Esq., New York, NY, for Defendant Bank of America, N.A.

OPINION

SWEET, District Judge.

Third party defendant BMP Paribas Securities Corporation (“BNPPS”) and third party defendant Deutsche Bank Securities, Inc. (“DBS”) (collectively, the “Note Dealers” or the “Third Party Defendants”) have moved pursuant to Rule 12(b)(6) of the Federal Rules of Civil procedure to dismiss the third party complaint (the “Complaint”) of the defendant and third party plaintiff Bank of America (“BoA” or the “Third Party Plaintiff”). The third party motion to dismiss (“Third Party Motion to Dismiss”) is granted and the Complaint is dismissed.

While the Third Party Motion to Dismiss was sub judice, the plaintiffs BNP Paribas Mortgage Corporation and BNP Paribas (“BNP”) and Deutsche Bank AG (“DB”) (collectively, the “Note Holders” or the “Plaintiffs”) moved pursuant to Rule 15(a)(2) of the Federal Rules of Civil Procedure to amend their first amended complaints (“FACs”) and for leave to file their proposed second amended complaints (“SACs”). Upon the conclusions set forth below, the Plaintiffs' motion to amend (“Motion to Amend”) is granted.

Once again, in this complicated dispute between major financial institutions arising out of the collapse of Taylor, Bean & Whitaker Mortgage Corp. (“TBW”) and its subsidiary Ocala Funding LLC (“Ocala”), pleading issues have arisen with respect to the Third Party Motion to Dismiss. According to BoA, the Complaint will serve to realign the parties by asserting claims for contribution arising out of negligence and breach of fiduciary duty. According to BNPPS and DBS, the Complaint fails to state viable causes of action.

With respect to the Motion to Amend, according to the Plaintiffs, the liberal standard governing amendment of pleadings compels that the motion be granted. According to BoA, the Motion to Amend has been unduly delayed, prejudices BoA, and should be denied on the basis of judicial economy.

Highly skilled advocates have again illuminated the conflicting positions.

I. Prior Proceedings

The Plaintiffs initiated these actions in November 2009, and alleged that (1) they had invested, collectively, over $1.6 billion in short-term notes issued by Ocala (the “Notes”), a wholly-owned subsidiary of TBW that served as a funding vehicle for TBW; (2) Ocala's assets were to have served as collateral for the repayment of Plaintiffs' notes; (3) due to a massive fraud by TBW, Ocala's assets were diverted or stolen by TBW and others; and (4) BoA should be responsible for these losses because it served as Indenture Trustee, Collateral Agent, Depositary, and Custodian for the Ocala notes, and allegedly breached its responsibilities under the corresponding facility documents, which includes the Indenture, the Security Agreement, the Depositary Agreement, and the Custodial Agreement (collectively, the “Facility Documents”), by failing to protect Ocala's collateral from the sort of wrongdoing that TBW committed.

BoA moved to dismiss these complaints in February 2010. In response, on March 17, 2010, the Plaintiffs filed their FACs reasserting their initial claims, adding new claims for breach of contract and breach of fiduciary duty, and generally supplementing and refining their factual allegations. In addition to their earlier theory that BoA had negligently performed its contractual duties, the Plaintiffs' FACs asserted that BoA had negligently provided them with incorrect Borrowing Base Certificates, on which they allegedly relied in deciding to “roll” their Ocala notes.

On April 30, 2010, BoA moved to dismiss the FACs and oral argument was heard on that motion on September 15, 2010. On March 23, 2011, this Court issued its ruling on BoA's motion in BNP Paribas Mortg. Corp. v. Bank of America, N.A., 778 F.Supp.2d 375 (S.D.N.Y.2011) (the “March Opinion”). The decision dismissed the Plaintiffs' contract claims under the Depositary Agreement and Custodial Agreement, but the Plaintiffs' indemnification claims and DB's claims under earlier versions of the Facility Documents were upheld.

On August 30, 2010, the Plaintiffs filed new actions against BoA in the Southern District of Florida, asserting claims for conversion of Ocala's assets and seeking to recover for their investment losses on their unpaid Ocala notes. Deutsche Bank AG v. Bank of America (“Deutsche II”), S.D. Fla. Civil Action No. 10–23124 and BNP Paribas Mortg. Corp. v. Bank of America (“BNP II”), S.D. Fla. Civil Action No. 10–23115 (collectively, the “Conversion Actions”). On November 17, 2010, the actions were transferred to the Southern District of New York and referred to this Court. By opinion en August 30, 2011, the Plaintiffs' conversion claims were dismissed. BNP Paribas Mortg, Corp. v. Bank of America, N.A., Nos. 10–8630 and 10–8299, 2011 WL 3847376 (S.D.N.Y. Aug. 30, 2011) (the “August Opinion”).

The parties commenced discovery in April 2011. BoA answered the Plaintiffs' FACs on June 8, 2011 and asserted several affirmative defenses. The parties stipulated and agreed to complete document production by March 30, 2012, close fact discovery on November 16, 2012, and the time to amend pleadings was extended to December 17, 2012,

By letter of July 6, 2011, the Plaintiffs made a formal demand on BoA, as Indenture Trustee and Collateral Agent, to pursue claims against the Depositary, Custodian and Collateral Agent for breaches of the Depositary, Custodial and Security Agreements. On August 6, 2011, BoA refused Plaintiffs' demands.

On June 22, 2011, BoA filed its Complaint against the Third Party Defendants, The Third Party Motions were heard and marked fully submitted on January 25, 2012.

On December 29, 2011, the Plaintiffs filed the Motion to Amend, which was heard and marked fully submitted on April 4, 2012.

II. The Applicable Standards

The applicable standard for the determination of Rule 12(b)6 motions was set forth in the March Opinion and that standard is equally applicable on this motion.

The standard governing motions to amend is a “permissive” one that is informed by a “strong preference for resolving disputes on the merits.” See Williams v. Citigroup Inc., 659 F.3d 208, 212–13 (2d Cir.2011) (citing New York v. Green, 420 F.3d 99, 104 (2d Cir.2005)); see also Pangburn v. Culbertson, 200 F.3d 65, 70 (2d Cir.1999) (referring to the “relaxed standard” for motions to amend). Rule 15(a) provides that leave to amend shall be “freely give[n] ... when justice so requires.” Fed.R.Civ.P. 15(a)(2).

While the decision whether to grant or deny leave to amend is within the sound discretion of the district court, refusal to grant leave must be based on a valid ground. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) (“outright refusal to grant the leave without any justifying reason appearing for the denial is not an exercise of discretion”); Acito v. IMCERA Grp., Inc., 47 F.3d 47, 55 (2d Cir.1995) ( “there must be good reason [for a district court] to deny the motion.”). Thus, the standard for leave to amend, while permissive, is by no means “automatic.” Klos v. Haskell, 835 F.Supp. 710, 715 (W.D.N.Y.1993). The Rule 15(a) standard “is not a mechanical absolute and the circumstances and terms upon which such leave is to be ‘freely given’ is committed to the informed, careful judgment and discretion of the Trial Judge as he superintends the development of a cause toward its ultimate disposition.” Freeman v. Continental Gin Co., 381 F.2d 459, 468 (5th Cir.1967).

Indeed, leave to amend should “only [be] given when factors such as undue delay or undue prejudice to the opposing party are absent.” SCS Commc'ns, Inc. v. Herrick Co., Inc., 360 F.3d 329, 345 (2d Cir.2004); see also Foman, 371 U.S. at 182, 83 S.Ct. 227 (stating that good reasons to deny leave include futility, bad faith, undue delay, or undue prejudice to the opposing party). Other factors that may be considered include the length of the delay, the judicial and party resources that have been expended, and any tactical behavior evident in the plaintiff's request for leave to amend. See generally McCarthy v. Dun & Bradstreet, 482 F.3d 184, 200–01 (2d Cir.2007); State Trading Corp. of India v. Assuranceforeningen Skuld, 921 F.2d 409, 418 (2d Cir.1990). Thus, generally stated, “if the plaintiff has at least colorable grounds for relief,” a district court may grant leave to amend “unless the plaintiff is guilty of undue delay or bad faith or unless permission to amend would unduly prejudice the opposing party.” S.S. Silberblatt, Inc. v. E. Harlem Pilot Block–Bldg. 1 Hous. Dev. Fund Co., 608 F.2d 28, 42 (2d Cir.1979).

III. THE THIRD PARTY MOTION TO DISMISS

BNP is a sister subsidiary of the Third Party Defendant BKPPS and DB is the parent company of the Third Party Defendant DBS. The Complaint alleges that the Third Party Defendants served as the exclusive Note Dealers for the Ocala notes involved in this action and were responsible for the promotion and marketing of the notes. (Complaint ¶ 13, Private Placement Memorandum (“PPM”) at 8–9). ¹ BoA contends that Ocala offered its Notes on a private placement basis in...