Lehman Bros. Holdings Inc. v. Evergreen Moneysource Mortgage Co.

• Decision Date: 06 June 2011
• Docket Number: Case No. C10–0172JLR.
• Parties: LEHMAN BROTHERS HOLDINGS, INC., Plaintiff,v.EVERGREEN MONEYSOURCE MORTGAGE COMPANY, Defendant.
• Court: U.S. District Court — Western District of Washington

793 F.Supp.2d 1189

LEHMAN BROTHERS HOLDINGS, INC., Plaintiff,

v.EVERGREEN MONEYSOURCE MORTGAGE COMPANY, Defendant.

Case No. C10–0172JLR.

United States District Court, W.D. Washington,at Seattle.

June 6, 2011.

Christopher A. Pesch, Locke Lord Bissell & Liddell LLP, Chicago, IL, Jason L. Sanders, Locke Lord Bissell & Liddell LLP, Dallas, TX, Sarah Weaver, Sarah Weaver PLLC, Seattle, WA, for Plaintiff.Jordan M. Hecker, Joshua Brittingham, Hecker Wakefield Feilberg PS, Seattle, WA, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

JAMES L. ROBART, District Judge.

I. INTRODUCTION

Before the court are Defendant Evergreen Moneysource Mortgage Company's (“Evergreen”) motion for summary judgment (Dkt. # 27), and Plaintiff Lehman Brothers Holdings, Inc.'s (“LBHI”) motion for summary judgment (Dkt. # 28). Having reviewed the motions, the parties' submissions in support and opposition thereto, the balance of the record, and the governing law, and having heard oral argument on June 2, 2011, the court GRANTS Evergreen's motion for summary judgment on the basis of expiration of the statutory limitations period (Dkt. # 27), and DENIES LBHI's motion for summary judgment as MOOT (Dkt. # 28).

II. BACKGROUND

LBHI filed this action against Evergreen on January 28, 2010. (Compl. (Dkt. # 1).) LBHI alleges claims for breach of contract and breach of express warranty arising out of a Loan Purchase Agreement (“LPA”) entered into between Evergreen and Aurora Loan Services, Inc. (“ALS”) on June 16, 2000. ( See Compl.; Baker Decl. (Dkt. # 29) Exs. 1–A & 1–C.) The LPA incorporates the terms and conditions of ALS's Seller's Guide. ( See Compl.; Baker Decl. Exs. 1–A & 1–C.) Any loans purchased under the LPA were to be made “pursuant to the terms and conditions of the Seller [sic] Guide.” (Baker Decl. Ex. 1–A.)

ALS is the wholly owned subsidiary of Lehman Brothers Bank, FSB n/k/a Aurora Bank, FSB (“LBB”), and LBHI is a parent corporation of both LBB and ALS. (Baker Decl. ¶ 4.) ALS is the authorized agent, servicer, and/or master servicer for LBB and LBHI for certain mortgage loans in which LBB and LBHI have an interest, including the mortgage loan that is the subject of this litigation. ( Id.) LBHI contends that, through assignment, it is the successor-in-interest of LBB and ALS with respect to rights under the LPA with Evergreen. (Compl. at 3.) For ease of reference, both LBB and ALS will be referred to simply as “LBB” throughout the remainder of this order.

Evergreen is a mortgage banker. (Moley Decl. (Dkt. # 27–4) ¶ 2.) On November 16, 2001, Evergreen began selling various loans to LBB pursuant to the LPA. (Baker Decl. ¶¶ 2, 5.) Under sections 703(1), 703(12) and 703(36) of the Seller's Guide, Evergreen made certain representations, warranties and covenants regarding the accuracy and truthfulness of the information contained in “any Mortgage Loan File,” including “the Mortgager's application for the Mortgage Loan,” and “the property appraisal or valuation.” ( Id. Ex. 1–C §§ 703(1), 703(12), 703(36).)

LBHI asserts that Evergreen breached the representations, warranties, and covenants within the Seller's Guide pertaining to a mortgage loan that Evergreen entered into with Mr. Wayne Stiffler (“the Stiffler loan”) and subsequently sold to LBB. ( See generally Compl.) LBHI asserts that certain documents that Evergreen submitted with the Stiffler loan contain untrue statements and misrepresentations. (LBHI Mot. (Dkt. # 28) at 7.) First, LBHI asserts Mr. Stiffler misrepresented his base employment income at the time he executed his application for a mortgage loan. ( Id. at 8–11.) Second, LBHI asserts that the origination appraisal overstates the value of Mr. Stiffler's property. ( Id. at 11–13.) LBHI asserts that pursuant to the Seller's Guide, Evergreen agreed to “indemnify” LBHI for losses pertaining to mortgage loans containing misrepresentations in the loan files. ( Id. at 13–15.) LBHI has moved for summary judgment with regard to these claims. ( Id. at 13–24.)

Evergreen has also moved for summary judgment relying primarily on a variety of affirmative defenses. ( See generally Evergreen Mot. (Dkt. # 27).) One of the affirmative defenses raised by Evergreen in its motion for summary judgment is expiration of the statute of limitations for contract actions. ( Id. at 22.) Mr. Stiffler executed his application for a mortgage loan with Evergreen on April 24, 2003. (Baker Decl. Ex. 1–K.) The origination appraisal with regard to Mr. Stiffler's property is dated March 14, 2003. ( Id. Ex. 1–L.) LBB purchased the Stiffler loan from Evergreen on May 12, 2003. (Moley Decl. (Dkt. # 27–4) Ex. 5; Baker Decl. ¶ 7.) The Stiffler application and the origination appraisal were documents furnished to LBB at the time that the Stiffler loan was sold to LBB. (LBHI Mot. at 8.) On June 3, 2003, LBB sold and assigned the Stiffler loan to LBHI. (Baker Decl. ¶¶ 5–6 & Exs. 1–D & 1–G.)

On September 18, 2008, LBHI filed for voluntary bankruptcy under Chapter 11 of of the United States Bankruptcy Code. See In re Lehman Brothers Holdings, Inc., et al., No. 08–1355(JMP) (Bankr.S.D.N.Y.). LBHI filed this action against Evergreen on January 28, 2010 in an effort to preserve the value of its assets for the benefit of its creditors in the bankruptcy proceedings. (LBHI Resp. (Dkt. # 35) at 21.) However, LBB did not execute a written agreement to assign its rights under the LPA and the Seller's Guide to LBHI until February 24, 2011 (Baker Decl. Ex. 1–H), more than one year after LBHI filed suit on January 28, 2010, and more than two years after LBHI filed for bankruptcy on September 18, 2008.

III. ANALYSIS

A. Standards

Summary judgment is appropriate if the pleadings, the discovery and disclosure materials on file, and any affidavits, when viewed in the light most favorable to the nonmoving party, “show that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Galen v. County of Los Angeles, 477 F.3d 652, 658 (9th Cir.2007). The moving party bears the initial burden of showing there is no genuine issue of material fact and that he or she is entitled to prevail as a matter of law. Celotex, 477 U.S. at 323, 106 S.Ct. 2548. If the moving party meets his or her burden, the nonmoving party must go beyond the pleadings and identify facts which show a genuine issue for trial. Cline v. Indus. Maint. Eng'g. & Contracting Co., 200 F.3d 1223, 1229 (9th Cir.2000). The non-moving party “must make a showing sufficient to establish a genuine dispute of material fact regarding the existence of the essential elements of his case that he must prove at trial.” Galen, 477 F.3d at 658.

B. Statute of Limitations

Both parties agree that New York substantive law governs this contract action. ( See LBHI Mot. at 15–16; Evergreen Mot. at 3; see also Baker Decl. Ex. 1–C § 713 (“The [LPA] shall be construed in accordance with the substantive law of the State of New York....”).) In New York, the statute of limitations with regard to a contract action is six years. CPLR § 213(2) (McKinney). The statute of limitations for contract actions begins to run from the date of the first alleged breach, even in the event that damages do not accrue until a later date. Nat'l Urban Ventures, Inc. v. City of Niagara Falls, 78 A.D.3d 1525, 910 N.Y.S.2d 615, 616 (2010) (citing Ely–Cruikshank Co., Inc. v. Bank of Montreal, 81 N.Y.2d 399, 402, 599 N.Y.S.2d 501, 615 N.E.2d 985 (1993)).

As noted above, LBB purchased the Stiffler loan from Evergreen on May 12, 2003. (Moley Decl. Ex. 5; Baker Decl. ¶ 7 & Ex. 1–J.) According to LBHI, at the time that LBB purchased the loan, the Mortgage Loan File “contained untrue statements and misrepresentations” (LBHI Mot. at 7), including misrepresentations concerning Mr. Stiffler's income ( id. at 8–11), and misrepresentations concerning the value of the property ( id. at 11–13). Evergreen asserts, therefore, that the statute of limitations with regard to LBHI's breach of contract claims began to run on May 12, 2003, the date that LBB acquired the loan. See, e.g. Hernandez v. Bank of Nova Scotia, 76 A.D.3d 929, 908 N.Y.S.2d 45, 46 (2010) (holding that limitations period for breach of contractual undertakings against a bank began to run when the bank allegedly provided false information to an accounting firm in breach of those undertakings).¹ If the accrual date is May 12, 2003, then the applicable six-year limitations period expired on May 12, 2009. Because LBHI did not file suit until January 28, 2010, more than eight months after termination of the limitations period, Evergreen asserts that LBHI's breach of contract claims are barred. (Evergreen Mot. at 22.)

LBHI responds to Evergreen's statute of limitations argument in a number of ways. First, LBHI asserts that the statute of limitations accrual date is actually November 7, 2009, rather than May 12, 2003. On October 8, 2009, a representative of LBHI sent a letter to Evergreen demanding payment for the $135,662.66 loss LBHI suffered on the liquidated Stiffler loan. (Moley Decl. Ex. 12.) LBHI asserts that Evergreen breached sections 710 and 711 of the Seller's Guide by failing to “indemnify” LBHI for this loss within thirty (30) days of LBHI's demand. (LBHI Resp. (Dkt. # 35) at 22 n. 7.) As a result, according to LBHI, its breach of contract claims against Evergreen actually accrued on November 7, 2009 (30 days following LBHI's October 8, 2009 demand), rather than on May 12, 2003. ( Id.)

LBHI's argument concerning the statute of limitations accrual date is flawed. First, Evergreen's duty under sections 710 and 711 to either repurchase mortgage loans or “indemnify” ² for losses incurred as a result of a mortgage loan is only triggered by “a breach of any of the representations, warranties, or covenants contained in Section 700 through 710...