Spencer Sav. Bank v. Bank of Am. Corp.

• Decision Date: 31 December 2018
• Docket Number: Civil No.: 14-cv-4633 (KSH) (CLW)
• Parties: SPENCER SAVINGS BANK, S.L.A., a mutual savings and loan association, Plaintiff, v. BANK OF AMERICA CORPORATION, successor to Countrywide Financial Corporation; COUNTRYWIDE FINANCIAL CORPORATION; COUNTRYWIDE HOME LOANS, INC.; COUNTRYWIDE HOME SERVICING, LP; BANK OF AMERICA, N.A.; and BAC HOME LOAN SERVICING, LP, Defendants.
• Court: U.S. District Court — District of New Jersey

SPENCER SAVINGS BANK, S.L.A., a mutual
savings and loan association, Plaintiff,
v.
BANK OF AMERICA CORPORATION, successor to Countrywide Financial Corporation;
COUNTRYWIDE FINANCIAL CORPORATION; COUNTRYWIDE HOME
LOANS, INC.; COUNTRYWIDE HOME SERVICING, LP; BANK OF AMERICA, N.A.;
and BAC HOME LOAN SERVICING, LP, Defendants.

Civil No.: 14-cv-4633 (KSH) (CLW)

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY

December 31, 2018

NOT FOR PUBLICATION

OPINION

Katharine S. Hayden, U.S.D.J.

I. Introduction

Plaintiff Spencer Savings Bank, S.L.A. ("Spencer") brought suit against defendants, claiming that they breached a Mortgage Loan Purchase and Security Agreement ("Agreement") by failing to carry out their obligations to properly service mortgage loans Spencer purchased under the Agreement. Defendants have moved¹ pursuant to Fed. R. Civ. P. 12(c) for judgment on the pleadings that the Agreement does not entitle Spencer to its attorneys' fees in prosecuting this action (D.E. 122). The motion is fully briefed (D.E. 122, 124, 127), and the Court decides it without oral argument.

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II. Background

The factual genesis of Spencer's claims is set forth in the Court's prior opinion granting in part and denying in part defendants' partial motion to dismiss the complaint (D.E. 42). The Court assumes familiarity with that opinion and recounts the relevant history only briefly. Spencer, a mutual banking association, alleges that it entered into the Agreement with defendants² in 2005, under which it purchased 130 mortgage loans, 99 of which remained active when the complaint was filed. (D.E. 1-2, Compl. ¶¶ 1-2 & Ex. A (Agreement).) Under the Agreement, defendants would service the mortgage loans in exchange for a fee from Spencer. (Compl. ¶¶ 3, 52; D.E. 51 ¶¶ 3, 52; D.E. 52 ¶¶ 3, 52; Agreement §§ 4.01-4.18.) Spencer claims that defendants breached various servicing-related obligations, and that its mismanagement significantly devalued the loan portfolio, particularly as to 42 loans that had been in collection. (Compl. ¶¶ 4-7, 50-102.)

Spencer alleges that on May 9, 2012, it put defendants on notice of their contractual default and demanded they cure their breaches; that its demand was rejected (which defendants deny in their answers); and that on June 21, 2012, it gave notice of termination of the Agreement. (Id. ¶¶ 104-06.) On March 21, 2014, after conducting an "exhaustive review of the subject loan files," Spencer asserts, it demanded that defendants repurchase the delinquent loans and reimburse it for "all consequential damages" resulting from their breach, "in an amount

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exceeding $10,841,252.38." (Id. ¶ 107.)

The dispute was not resolved, and in May 2014, Spencer filed a four-count complaint, which was later removed to this Court. As described in the Court's prior opinion, in count 1, Spencer asserted a breach of contract claim; in count 2, it sought indemnification for all losses and legal expenses caused by the breaches; in count 3; it claimed that defendant Bank of America Corporation is liable for the other defendants' breaches pursuant to a theory of successor liability; and in count 4, it sought injunctive relief compelling the repurchase of the 42 delinquent loans at par value and "all ancillary damages" for the breaches. (See D.E. 42, 6/30/15 Op. at 4; Compl. ¶¶ 103-131.) The Court dismissed count 4 on June 30, 2015 (D.E. 42, 43), and the defendants answered the complaint on July 31, 2015 (D.E. 51, 52.) In June 2017, the parties agreed, in a stipulation that the Court approved, to stay and hold in abeyance count 3, which they described as asserting a successor liability claim against Bank of America Corporation, until the primary liability claims are resolved against the remaining defendants (D.E. 101).

Defendants have now moved under Fed. R. Civ. P. 12(c) for judgment on the pleadings, limited to the issue of whether Spencer may recover attorneys' fees for its prosecution of this action. Defendants argue that under California law, which the parties do not dispute governs the Agreement, § 6.01 of the Agreement neither expressly authorizes Spencer to recover attorneys' fees incurred in this action nor operates as a prevailing party provision entitling Spencer to recover attorneys' fees. Instead, defendants contend that § 6.01's attorneys' fee language should be interpreted as referring only to legal costs incurred incidental to defendants' performance of their loan servicing obligations under the Agreement; i.e., in third-party actions. (See D.E. 122, Defs.' Moving Br.)

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Spencer contends in opposition that indemnification clauses such as § 6.01 permit the recovery of attorneys' fees for defendants' breach of contract, regardless of whether "that breach leads to a first party breach of contract claim, or just a third party claim" (D.E. 124, Pl.'s Opp. Br. 2), and that the plain language of § 6.01 and the Agreement as a whole support its interpretation. Spencer also contends that defendants are judicially estopped from offering their present interpretation of § 6.01 based on arguments they made in their 2014 motion to dismiss, with which they claim the Court agreed. In reply, defendants dispute that their prior arguments or the Court's ruling trigger judicial estoppel and reiterate their proffered interpretation of § 6.01. (D.E. 127, Defs.' Reply Br.)

III. Legal Standard

Fed. R. Civ. P. 12(c) permits motions for judgment on the pleadings to be made "[a]fter the pleadings are closed—but early enough not to delay trial." A motion for judgment on the pleadings for failure to state a claim, which defendants argue is the case here, "'is analyzed under the same standards that apply to a Rule 12(b)(6) motion.'" Zimmerman v. Corbett, 873 F.3d 414, 417 (3d Cir. 2017) (quoting Revell v. Port Auth. of N.Y., N.J., 598 F.3d 128, 134 (3d Cir. 2010)), cert denied, 138 S. Ct. 2623 (2018). Accordingly, the Court must accept the plaintiff's pleaded allegations as true, and draw all reasonable inferences in its favor. Id. at 417-18. The motion will be granted only if the movant shows that no material issues of fact exist and that it is entitled to judgment as a matter of law. Id. at 417. As with a motion under Fed. R. Civ. P. 12(b)(6), the Court is confined to the pleadings and a limited universe of additional documents in ruling on a motion for judgment on the pleadings. See Fed. R. Civ. P. 12(d); Teel v. Eliasen, 2018 U.S. Dist. LEXIS 183853, at *4-5 (D.N.J. Oct. 26, 2018) (Kugler, J.).

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IV. Analysis

The crux of the parties' dispute is the proper interpretation of § 6.01 of the Agreement, which provides as follows:

Section 6.01 Additional Indemnification by Countrywide. In addition to the indemnification provided in Section 3.03(d), Countrywide shall indemnify the Purchaser and hold it harmless against any and all claims, losses, damages, penalties, fines, forfeitures, reasonable and necessary attorneys' fees and related costs, judgments, and any other costs, fees and expenses that the Purchaser may sustain in any way related to the failure of Countrywide to perform its obligations hereunder including its obligations to service and administer the Mortgage Loans in compliance with the terms of this Agreement. Notwithstanding the foregoing, the Purchaser shall indemnify Countrywide and hold it harmless against any and all claims, losses, damages, penalties, fines, forfeitures, reasonable and necessary legal fees and related costs, judgments, and any other costs, fees and expenses that Countrywide may sustain in any way related to (a) actions or inactions of Countrywide which were taken or omitted upon the instruction or direction of the Purchaser, or (b) the failure of the Purchaser to perform its obligations hereunder, including subsections (i) and (ii) in Section 6.04.

Defendants contend that this provision's reference to their indemnification of Spencer's attorneys' fees should be construed to include only attorneys' fees incurred in third-party actions (e.g., actions to collect on the loans or foreclose on the properties securing them) or otherwise incident to defendants' performance of their servicing obligations, whereas Spencer claims that attorneys' fees incurred in first-party, or direct, actions between the parties to the Agreement - specifically, this action by Spencer for breach of the Agreement by defendants - must also be reimbursed.

A. Judicial Estoppel Does Not Apply

In its papers, Spencer emphasizes a threshold issue: whether defendants are judicially estopped from offering their interpretation of § 6.01. The doctrine of judicial estoppel allows a court to "defend the integrity of the judicial process by barring a party from taking contradictory positions during the course of the litigation." G-I Holdings, Inc. v. Reliance Ins. Co., 586 F.3d

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247, 261 (3d Cir. 2009).³ Three factors inform the Court's decision whether to apply the doctrine: (1) whether the party has taken "irreconcilably inconsistent positions," (2) whether it adopted those inconsistent positions in bad faith, and (3) whether estoppel would address the harm and no lesser sanction would suffice. Id. at 262 (citation and internal quotation marks omitted). Applying judicial estoppel to bar a party's position is an "extreme remedy" to be used "only when the inconsistent positions are tantamount to a knowing misrepresentation to or even fraud on the court." Chao v. Roy's Constr., Inc., 517 F.3d 180, 186 n.5 (3d Cir. 2008) (citations and internal quotation marks omitted).

Spencer's argument falls well short of this standard, and in fact fails at the first step: defendants have not taken a position inconsistent with the arguments they made in support of their motion to dismiss. There, defendants argued that indemnification under § 6.01 for actual losses is the contractually-permitted remedy for the servicing breaches claimed by Spencer, and that the repurchase remedy Spencer sought was available only for breaches of certain...