Residential Funding Co. v. Hometown Mortg. Servs., Inc. (In re RFC & Rescap Liquidating Trust Litig.)
| Decision Date | 28 July 2015 |
| Docket Number | No. 13-cv-3509 (PAM/HB),Case No. 13-cv-3451 (SRN/JJK/HB),13-cv-3509 (PAM/HB) |
| Parties | In re: RFC and ResCap Liquidating Trust Litigation This document relates to: Residential Funding Company, LLC v. Hometown Mortgage Services, Inc. |
| Court | U.S. District Court — District of Minnesota |
This matter is before the Court on Defendant Hometown Mortgage Services, Inc.'s Unique Issue Motion to Dismiss Count I of Plaintiff's Second Amended Complaint [Doc. No. 317]. For the reasons set forth below, the Motion is denied.
The alleged facts giving rise to the lawsuits in this consolidated action have been described in multiple prior Orders from this Court. Briefly stated, this particular lawsuit arises out of Defendant Hometown Mortgage Services, Inc.'s ("Hometown") sale of allegedly defective mortgage loans to Residential Funding, LLC ("RFC"). ( Prior to May 2012, RFC was "in the business of acquiring and securitizing residential mortgage loans," (id. ¶ 2), and RFC acquired the loans from "'correspondent lenders,'" such as Hometown, (id. ¶ 3). According to the Second Amended Complaint, RFC's relationship with Hometown was governed by a Client Contract that incorporated the terms and conditions of RFC's Consumer FinanceAcquisitions Guide ("CFA Guide") and RFC's Client Guide, and these documents "collectively form the parties' Agreement, and set the standards to which Hometown's loans sold to RFC were expected to adhere." It is alleged that, pursuant to the Agreement, Hometown made many representations and warranties regarding the loans, including that Hometown would "promptly notify" RFC of any material acts or omissions regarding the loans. (Id. ¶ 24(b) (citing Client Guide A201(M)).) The Agreement also provided for certain remedies for RFC in the event of a breach, including repurchase of the defective loan or indemnification against losses and liabilities resulting from the breach. (Id. ¶¶ 29-33.) The Client Contract, Client Guide (or excerpts thereof), and CFA Guide are attached to the Second Amended Complaint as Exhibits A, B-1, B-4 through B-31, and F; and lists of the loans sold by Hometown to RFC are attached as Exhibits C-1 and C-2. The most recent acquisition of any of the loans allegedly occurred in 2007. (See id., Exs. C-1, C-2.)
After purchasing the loans from Hometown, RFC either pooled the loans to sell into residential mortgage-backed securitization ("RMBS") trusts or sold them to whole loan purchasers. (Id. ¶¶ 3, 36.) According to RFC, many of the loans were defective and, beginning in 2008, RFC faced claims and lawsuits resulting from defective loans it had purchased, including loans from Hometown. By May 2012, RFC had spent millions of dollars repurchasing defective loans, including loans sold to it by Hometown, (id. ¶ 71), and on May 14, 2012, RFC filed for Chapter 11 bankruptcy in the Bankruptcy Court for the Southern District of New York, (id. ¶ 72; In re Residential Capital,LLC, Case No. 12-12020 (MG) (Bankr. S.D.N.Y.)). RFC alleges that hundreds of proofs of claim related to allegedly defective mortgage loans, including those sold to RFC by Hometown, were filed in connection with the bankruptcy proceedings. (Second Am. Compl. ¶ 73.)
The Bankruptcy Court eventually approved a global settlement for more than $10 billion in allowed claims. (Id. ¶ 76.) RFC claims that Hometown is obligated, pursuant to the Agreement, to compensate RFC for losses and liabilities related to Hometown's breaches of representations and warranties. (Id. ¶ 78.) Accordingly, RFC filed a lawsuit asserting two causes of action against Hometown. In Count One, a claim for breach of contract, RFC alleges that Hometown materially breached the representations and warranties it made to RFC because the mortgage loans it sold to RFC did not comply with those representations and warranties. (Id. ¶ 83.) RFC asserts that these material breaches constitute Events of Default under the Agreement and have resulted in losses and liabilities related to the defective loans, as well as losses associated with defending the lawsuits and proofs of claim that stem from those loans. (Id. ¶¶ 84-85.) In Count Two, RFC alleges that it is entitled to indemnification from Hometown for those losses and liabilities. (Id. ¶¶ 87-90.)
When evaluating a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, for failure to state a claim upon which relief can be granted, the Court assumes the facts in the Complaint to be true and construes all reasonable inferences fromthose facts in the light most favorable to the plaintiff. Morton v. Becker, 793 F.2d 185, 187 (8th Cir. 1986). However, the Court need not accept as true wholly conclusory allegations, see Hanten v. Sch. Dist. of Riverview Gardens, 183 F.3d 799, 805 (8th Cir. 1999), or legal conclusions the plaintiff draws from the facts pled, Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990). In addition, the Court ordinarily does not consider matters outside the pleadings on a motion to dismiss. See Fed. R. Civ. P. 12(d). The Court may, however, consider exhibits attached to the complaint and documents that are necessarily embraced by the pleadings, Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003), and may also consider public records, Levy v. Ohl, 477 F.3d 988, 991 (8th Cir. 2007).1
Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a complaint "must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief." The U.S. Supreme Court, in Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), clarified that this Rule does not require that a complaint contain "detailed factual allegations," but it does require that it contain facts with enough specificity "to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. In other words, this standard "calls for enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of [the claim]." Id. at 556. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, donot suffice." Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555). Thus, to survive a motion to dismiss, a complaint must contain "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570.
In its Motion, Hometown argues that Count I must be dismissed both because the statute of limitations precludes recovery on all of the loans it sold to RFC, and because RFC cannot bring suit on liquidated loans. (See Mem. of Law in Supp. of Hometown's Mot. to Dismiss Count I of Pl.'s Second Am. Compl. [Doc. No. 319] ("Hometown's Mem.") at 5-13.) Both arguments fail.
Hometown first argues that RFC's claims for breach of contract are time-barred. As for loans RFC purchased prior to May 14, 2006, Hometown asserts that any related claims accrued on the date of purchase and so are barred by Minnesota's six-year statute of limitations. (See id. at 5-11.) According to Hometown, this Court is bound by Judge Magnuson's decision in Residential Funding Co., LLC v. Embrace Home Loans, Inc., 27 F. Supp. 3d 980 (D. Minn. 2014) ("Embrace I"), in which Judge Magnuson—prior to consolidation—granted Hometown's motion to dismiss Count I of RFC's First Amended Complaint to the extent that it was based on such loans. (Id. at 5.) Hometown also contends that the Second Amended Complaint (filed on September 29, 2014) does not relate back to the date of the original Complaint because it alleges breaches of both the CFA Guide and the Client Guide (whereas the original Complaint and First Amended Complaint alleged breaches only of the Client Guide), and because the Second Amended Complaintnewly alleges breaches under a continuing obligation theory. (Def. Hometown's Reply to Opp. to Mot. to Dismiss Count I of Pl.'s Second Am. Compl. [Doc. No. 432] ("Hometown's Reply") at 6-7.) Accordingly, Hometown argues, RFC's claims based on loans it purchased between May 14, 2006 and September 29, 2008 also are untimely. (See Hometown's Mem. at 9-10.)
In opposition, RFC argues that its breach of contract claims based on loans sold to RFC prior to May 14, 2006 are timely because Hometown had a continuing contractual obligation to notify RFC of loan defects, as it argued in response to a similar motion to dismiss brought by Decision One Mortgage Company, LLC ("Decision One") in this consolidated action. (Pl.'s Mem. of Law in Opp. to Hometown's Mot. to Dismiss Count I of Pl.'s Second Am. Compl. [Doc. No. 387] ("Pl.'s Opp.") at 6.) RFC asserts that, because Hometown has not raised any new arguments not already addressed by this Court's Order denying Decision One's Motion, Hometown's Motion also should be denied. (Id.) RFC further argues that Judge Magnuson's decision in Residential Funding Co., LLC v. Embrace Home Loans, Inc., Civ. No. 13-3457 (PAM/HB), 2015 WL 1275340 (D. Minn. Mar. 19, 2015) ("Embrace II"), in which he denied a motion to dismiss Count I of RFC's Second Amended Complaint and reinstated RFC's breach of contract claim for loans acquired prior to May 14, 2006 (based on the continuing obligation theory), supersedes Embrace I. (Id. at 7.) Finally, RFC argues that its Second Amended Complaint relates back to the date of the original Complaint because the claims arose out of the same conduct. (See id. at 7-14.)
The Court agrees with RFC. First, under § 108(a) of the Bankruptcy Code, if the statute of limitations governing a debtor's claim has not expired prior to the filing of the bankruptcy petition, the trustee may commence an action on that claim before the later of the end of the statutory limitations period or "two years after the order...
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