Lehman Bros. Holdings, Inc. v. Approved Funding Corp.

• Decision Date: 03 September 2013
• Docket Number: Index No. 651496/2011
• Citation: Lehman Bros. Holdings, Inc. v. Approved Funding Corp., 2013 NY Slip Op 32123, Index No. 651496/2011 (N.Y. Sup. Ct. Sep 03, 2013)
• Parties: LEHMAN BROTHERS HOLDINGS, INC., Plaintiff, v. APPROVED FUNDING CORP., Defendant.
• Court: New York Supreme Court

2013 NY Slip Op 32123

LEHMAN BROTHERS HOLDINGS, INC., Plaintiff, v. APPROVED FUNDING CORP., Defendant.

Index No. 651496/2011

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK : IAS PART 41

Dated: September 3, 2013

LAWRENCE K. MARKS, J.

This is an action for damages for breach of a loan repurchase agreement. Plaintiff Lehman Brothers Holdings Inc. ("Lehman Brothers") moves for summary judgment against defendant Approved Funding Corp. ("Approved Funding"). Approved Funding cross-moves for summary judgment dismissing the complaint.

BACKGROUND

Approved Funding is a mortgage lender which sells mortgage loans in the secondary market to investors. Compl, ¶ 9. Approved Funding entered into written Loan Purchase Agreements with non-party Lehman Brothers Bank, FSB ("LBB"), dated January 14, 2005 ("the Agreements"). Id. at ¶ 10. The Agreements incorporated the terms of the Seller's Guide of non-party Aurora Loan Services LLC ("Aurora"), which was LBB's agent. Id. at ¶ 11; Baker Aff, Exh B ("Guide").

Among the loans that Approved Funding sold to LBB was loan number 40002768, the loan at issue in this dispute ("the Loan"). Compl, ¶ 13. See also Baker Aff, Exh E. The Loan had a principal amount of $480,000. Baker Aff, Exh E. LBB later sold the loan to plaintiff Lehman Brothers. Baker Aff, ¶ 6.

The first payment under the Loan was due on March 1, 2007. Baker Aff, ¶ 16; Baker Aff, Exh E. The first payment was made on March 8, 2007. Baker Aff, ¶ 16. The second payment was due on April 1, 2007, but neither it nor any future payments were made. Baker Aff, ¶¶ 17-18.

By letter dated May 15, 2007, Aurora notified Approved Funding that there had been an early payment default on the Loan. Baker Aff, Exh G. The letter cites the provision and quoted relevant language from the controlling Seller's Guide regarding early payment default.¹ The letter further provides:

Because the loan did not meet Lehman's purchase requirements, we ask that you fulfill your obligations pursuant to the Agreement and Seller's Guide and repurchase the loan within 30 days of the date of this letter. In certain circumstances, as a special courtesy to our correspondents, Lehman may permit you to pursue alternatives to repurchase, including a cure of defect within a reasonable time period, indemnification of Lehman, or repricing of the loan. Lehman's offer to Approved Funding Corp. of an alternative to repurchase may not be construed to prejudice or waiver [sic] of any rights Lehman has to request repurchase of the Loan at a later time.

We ask that you review the loan along with our findings to determine whether you can cure the above-referenced defect or provide evidence to refute our findings. If you are unable to cure the defect or cannot provide sufficient evidence to refute our findings within 30 days, Lehman will require that you fulfill your obligations pursuant to the Agreement and the Seller's Guide and repurchase the loan.

* * *

Nothing in this letter may be construed to prejudice any rights or remedies that Lehman may have under the Agreement, the Seller's Guide, the Loan documents (including, but not limited to, the promissory note and security instrument), at law or in equity, nor is Lehman waiving any event of default, including those not described herein, that may exist now or in the future under the Agreement or Seller's Guide.

Baker Aff, Exh G.

Aurora, on behalf of Lehman Brothers, and Approved Funding engaged in numerous communications through at least early February 2008. Baker Aff, ¶ 25; Opp & Cross-Mot Br, at 22. The final e-mail provided on this motion, from Aurora to Approved Funding, dated February 12, 2008 states:

We still do not have a resolution on the above loans. Our last proposal to you was to cap the loss at 162,600.00, with 25K upfront along with a volume deal. We never received a response back from you. Unfortunately, we are unable to do a volume deal as we have shut down our correspondent lending. Therefore, I am reaching out to you for 1 last time to try to reach a resolution. I believe you have some loans in the pipeline. We will not be able to fund those loans until a resolution is completed.

I am proposing that we still cap the loss at 162,500.00 and Approved send 25K upfront. We can allow the difference of$137,500.00 to be paid overtime, perhaps 6 months or 22K per month. This is contingent upon management approval. Please respond by end of business 2/13/08 as to whether or not you can agree to this? If you would like to propose a settlement, please respond as I will be more than willing to listen. We need to finalize a resolution prior to end of the week to avoid escalating your company to our legal division. I hope we can come to a [sic] amicable resolution.

Baker Aff, Exh H. The parties did not resolve the issue.

On or about May 31, 2008, Lehman Brothers sold the Loan to the Structured Asset Securities Corporation ("SASCO"). Baker Aff, ¶ 26; Baker Aff, Exhs I - J.

Lehman Brothers filed the complaint in this action on May 31, 2011. The complaint contains a single cause of relief-Lehman Brothers alleges that Approved Funding was in breach of contract, by refusing or otherwise failing to repurchase the Loan. Compl, ¶ 23. In its complaint, Lehman Brothers seeks actual and consequential damages of not less than $150,000. Id. at ¶ 24. In this motion, Lehman Brothers asserts that its damages are $343,951.85, plus attorney's fees, costs and post-judgment interest. Mot Br at 3.

Plaintiff moved for summary judgment, and defendant cross-moved for same. Argument on the two summary judgment motions was held on February 11, 2013. At that time, the Court raised several concerns, and gave counsel the opportunity to address them in supplemental papers, and with further argument on those issues. Argument wastherefore held, again, on May 20, 2013.² Following the conclusion of the argument, counsel were told that Lehman Brothers would be granted summary judgment on liability, but not on damages, and that Approved Funding's cross-motion would be denied.

DISCUSSION

A motion for summary judgment will be granted only where a movant has made "a prima facie showing of entitlement to judgment as a matter of law" and has established the absence of or "eliminate[d] any material issues of fact from the case." Winegrad v. New York Univ. Med. Ctr., 64 N.Y.2d 851, 853 (1985). The assertions of the non-moving party are given every favorable inference in opposition to a motion for summary judgment. Myers v. Fir Cab Corp., 64 N.Y.2d 806, 808 (1985); Martin v. Briggs, 235 A.D.2d 192, 196 (1st Dep't 1997).

Lehman Brothers' Motion for Summary Judgment:

Lehman Brothers contends that it is entitled to summary judgment because it has established both Approved Funding's default regarding the Loan, and its damages. It seeks $343,951.85, plus attorney's fees, costs and interest. Lehman Brothers asserts that it did not waive any of its rights in engaging in negotiations with Approved Funding, thatit was not required to make any demand to Approved Funding following the default, and that it properly sold the Loan to SASCO when Approved Funding failed to take any action with respect to the Loan.

Approved Funding asserts that the only reason it failed to repurchase the loan was because Aurora, acting on behalf of Lehman Brothers, advised it to "hold off on repurchasing the loan, and enter into settlement negotiations instead. AF's Supp Br at 10. It contends that Lehman Brothers cannot rely on Approved Funding's failure to perform under the contract, given that during the negotiations, Aurora "imploded and disappeared," in the context of the well publicized collapse of Lehman entities. Id. Approved Funding avers that this is what prevented it from actually repurchasing the loan. Opp & Cross Mot Br, at 21.³ Approved Funding further argues that Lehman Brothers waived its right to require it to repurchase the loan when Lehman Brothers sold the loan to a third-party for less than fair market value. Id.

Approved Funding's arguments are unpersuasive. The contracts and agreements at issue are clear. There was a loan, payments were due under the Loan, and after the first payment defendant made no further payments. This was sufficient to trigger the early payment default clause which, in turn, triggered the repurchase obligation. Seller'sGuide, §§ 715, 710. Defendant unquestionably did not repurchase the Loan. That, eventually, the Lehman entities did not respond to defendant, given their own circumstances, did not change or create any ambiguity with regard to Approved Funding's obligations. As such, defendant is in breach. "This follows from the bedrock principle that it is a court's task to enforce a clear and complete written agreement according to the plain meaning of its terms, without looking to extrinsic evidence to create ambiguities not present on the face of the document." 150 Broadway N.Y. Assocs., L.P. v. Bodner, 14 A.D.3d 1, 6 (1st Dep't 2004). See also Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 60 A.D.3d 61, 66-67 (1st Dep't 2008). Therefore, there is no question with regard to the liability of defendant.

However, with regard to damages, plaintiff has failed to meet its burden of proof. It "is axiomatic that the party 'complaining of injury has the burden of proving the extent of the harm suffered.'" City of New York v. State, 27 A.D.3d 1, 4 (1st Dep't 2005) (internal citations omitted). See also J.R. Loftus, Inc. v. White, 85 N.Y.2d 874, 877 (1995) (where the court holds that plaintiff "bears the burden of proving the extent of the harm suffered"). It is also true that it is "defendant's burden to establish not only that plaintiff failed to make diligent efforts to mitigate its damages . . . but also the extent to which such efforts would have diminished its damages." LaSalle Bank Nat'l Ass'n v. Nomura Asset Capital Corp., 47 AD3d 103, 107-08 (2007). However, plaintiffscontinual reliance on this principle (see, e.g., Mot Br at 5-6; P's Supp Br at 9-10...