Residential Funding Co. v. Embrace Home Loans, Inc.
| Decision Date | 18 June 2014 |
| Docket Number | Civ Nos. 13–3457 PAM/FLN,13–3509 PAM/FLN,13–3545 PAM/FLN. |
| Court | U.S. District Court — District of Minnesota |
| Parties | RESIDENTIAL FUNDING COMPANY, LLC, Plaintiff, v. EMBRACE HOME LOANS, Inc., f/k/a Advanced Financial Services, Inc., Defendant. Residential Funding Company, LLC, Plaintiff, v. Hometown Mortgage Services, Inc., Defendant. Residential Funding Company, LLC, Plaintiff, v. Circle Mortgage Corp., Defendant. |
RESIDENTIAL FUNDING COMPANY, LLC, Plaintiff
v.
EMBRACE HOME LOANS, Inc., f/k/a Advanced Financial Services, Inc., Defendant.
Residential Funding Company, LLC, Plaintiff
v.
Hometown Mortgage Services, Inc., Defendant.
Residential Funding Company, LLC, Plaintiff
v.
Circle Mortgage Corp., Defendant.
Civ Nos. 13–3457 PAM/FLN
13–3509 PAM/FLN
13–3545 PAM/FLN.
United States District Court, D. Minnesota.
Signed June 18, 2014.
David L. Hashmall, Donald G. Heeman, Jessica J. Nelson, Felhaber Larson, Minneapolis, MN, Peter E. Calamari, Quinn Emanuel Urquhart & Sullivan LLP, New York, NY, Jeffrey A. Lipps, Carpenter Lipps & Leland LLP, Columbus, OH, for Plaintiff.
Sharon Robin Markowitz, Todd A. Noteboom, W. Anders Folk, Minneapolis, MN, for Defendant.
MEMORANDUM AND ORDER
PAUL A. MAGNUSON, District Judge.
This matter is before the Court on Motions to Dismiss filed by each of the Defendants raise substantially the same legal issues and the Court consolidated the Motions for purposes of oral argument. For the reasons that follow, the Motions are granted in part and denied in part.
BACKGROUND
Plaintiff Residential Funding Company, LLC (“RFC”) was, until it declared bankruptcy in May 2012, an issuer of mortgage-backed securities. (Am. Compl. (Docket No. 28) ¶ 2.)1 RFC purchased residential mortgages from hundreds of financial institutions throughout the country and aggregated those mortgages into residential mortgage-backed securities. (Id. ¶ 3.) When the housing market declined and many of the original mortgages turned out to be bad loans, RFC found itself embroiled in lawsuits brought by investors in the mortgage-backed securities. (Id. ¶ 7.) RFC seeks to recoup its losses from the
original mortgage-issuing institutions, such as the three Defendants here. According to RFC, the mortgages these institutions issued were defective and did not comply with the underwriting and originating standards set forth in the parties' agreements, which are all various versions of a so-called “Client Guide.” (Id. ¶¶ 7, 18, 24.)
As part of its Chapter 11 bankruptcy plan, RFC entered into a global settlement of the lawsuits arising out of the mortgage-backed securities. (Id. ¶ 10.) The bankruptcy court confirmed RFC's Chapter 11 plan on December 11, 2013. (Id. ) These cases are three of the more than 80 similar cases filed or removed to this District shortly after the bankruptcy plan's confirmation.2 Although RFC initially sought to transfer venue of the cases to the Southern District of New York, RFC has withdrawn those motions to transfer. (June 5, 2014, Letter from Jessica J. Nelson (Docket No. 42 in 13–3457; Docket No. 56 in 13–3509; Docket No. 45 in 13–3545).)
RFC's Amended Complaints in each matter raise claims for breach of contract and for indemnification against the financial institutions. Defendants argue that the allegations in the Amended Complaints are insufficient to put Defendants on notice of the claims against them, and that some or all of RFC's claims are barred by the applicable statute of limitations.
DISCUSSION
A. Standard of Review
When evaluating a motion to dismiss under Rule 12(b)(6), the Court assumes the facts in the Complaint to be true and construes all reasonable inferences from those facts in the light most favorable to Plaintiff. Morton v. Becker, 793 F.2d 185, 187 (8th Cir.1986). However, the Court need not accept as true wholly conclusory allegations, Hanten v. Sch. Dist. of Riverview Gardens, 183 F.3d 799, 805 (8th Cir.1999), or legal conclusions Plaintiffs draw from the facts pled. Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th Cir.1990).
When considering a motion to dismiss, the Court ordinarily does not consider matters outside the pleadings. 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).
To survive a motion to dismiss, a complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Although a complaint need not contain “detailed factual allegations,” it must contain facts with enough specificity “to raise a right to relief above the speculative level.” Id. at 555, 127 S.Ct. 1955. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements,” will not pass muster under Twombly.
Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 555, 127 S.Ct. 1955 ). In sum, this standard “calls for enough fact [s] to raise a reasonable expectation that discovery will reveal evidence of [the claim].” Twombly, 550 U.S. at 556, 127 S.Ct. 1955.
B. Motions to Dismiss
As noted, these three Defendants have brought motions to dismiss that are substantially the same. They argue in the main that the allegations in RFC's Amended Complaints are insufficiently pled under Rule 8(a), and that some or all of RFC's claims are time-barred.
1. Embrace Home Loans, 13–3457
Embrace sold more than 3,500 mortgage loans to RFC over a ten-year period, from 1997 to 2007. (Am. Compl. ¶ 4.) RFC contends in its Amended Complaint that “hundreds” of these loans were defective. (Id. ¶ 41.) The Amended Complaint points to seven specific defective loans “[b]y way of example” (id. ¶ ¶ 43, 54) but does not specifically state how any of the remaining loans were allegedly defective. And the Amended Complaint acknowledges that Embrace repurchased three of the seven specific loans to which RFC points as examples. (Id. ¶ 43.) Despite the repurchases, RFC contends that because the defective loans were included in RFC's securitization scheme, RFC has suffered “additional liabilities and losses for which Embrace has not compensated RFC.” (Id. ¶ 43.a.) The Amended Complaint does not specify what those additional liabilities and losses are.
RFC raises two claims against Embrace. The first is for breach of contract alleging that Embrace breached the representations and warranties in the parties' contract by selling loans to RFC that did not comply with those representations and warranties. (Id. ¶ 82.)3 Count Two contends that Embrace agreed to indemnify RFC against the damages RFC has incurred in these lawsuits. (Id. ¶¶ 87–88.) The Amended Complaint seeks damages and a declaratory judgment that Embrace must indemnify RFC.
a. Statute of Limitations
Embrace4 contends that RFC's breach-of-contract claim is time-barred, either in whole or in part. Minnesota law requires that an action for breach of contract be “commenced within six years” of the breach. Minn.Stat. § 541.05, subd. 1 ; see also Pederson v. Am. Lutheran Church, 404 N.W.2d 887, 889 (Minn.Ct.App.1987) (“A cause of action for breach of contract accrues at the time of the alleged breach.”). The Amended Complaint alleges that the breach-of-contract claim arises out of Embrace's alleged breach of representations and warranties that were “material terms in RFC's agreement to acquire the mortgage loans from Embrace.” (Am. Compl. ¶ 25.) Thus, the breaches occurred at the sale of the loans.
RFC now contends that its breach-of-contract claim also alleges that Embrace violated its continuing obligations under the Client Guide. The Client Guide provides that Embrace “will promptly notify [RFC] of any occurrence, act, or omission regarding [Embrace], the Loan, the Mortgaged
Property or the Mortgagor of which [Embrace] has knowledge, which ... may materially affect [Embrace], the Loan, the Mortgaged Property, or the Mortgagor.” (Id. Ex. B § 2A.201(M).) According to RFC, it alleges that Embrace breached this provision by failing to provide RFC with unspecified information that materially affected the loans sold. The unspecified breaches of this continuing obligation allegedly occurred post-sale; because Embrace's obligation was ongoing, breaches of this provision may continue to this day.
In support of this argument, RFC points to paragraphs 19 through 21 of its Amended Complaint. These paragraphs allege that the loans Embrace sold to RFC had an aggregate principal balance of $390 million (id. ¶ 19); that Embrace had the “initial responsibility” for getting information from the borrower and “primary responsibility” for underwriting the loan (id. ¶ 20); and that Embrace knew that, once the loans were sold, RFC would pool the loans into collateral underlying mortgage-backed securities. (Id. ¶ 21.) Nowhere in these three paragraphs, or indeed anywhere else in the Amended Complaint, does RFC mention any continuing obligations or contend that Embrace breached those continuing obligations so as to forestall the running of the statute of limitations.
Nor...
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