Syncora Guarantee Inc. v. Countrywide Home Loans, Inc.

• Decision Date: 03 January 2012
• Citation: 36 Misc.3d 328,935 N.Y.S.2d 858
• Parties: SYNCORA GUARANTEE INC., Plaintiff, v. COUNTRYWIDE HOME LOANS, INC., Countrywide Securities Corp., Countrywide Financial Corp., and Bank of America Corporation, Defendants.
• Court: New York Supreme Court

36 Misc.3d 328

935 N.Y.S.2d 858

SYNCORA GUARANTEE INC., Plaintiff,

v.COUNTRYWIDE HOME LOANS, INC., Countrywide Securities Corp., Countrywide Financial Corp., and Bank of America Corporation, Defendants.

Supreme Court, New York County, New York.

Jan. 3, 2012.

Mark P. Goodman, Donald W. Hawthorne, John S. Craig and Felix J. Gilman of Debevoise & Plimpton LLP, for Plaintiff.

Mark Holland, Sarah Heaton Concannon, Abigail K. Hemani, Paul F. Ware and Thomas M. Hefferon of Goodwin Proctor LLP; and David M. Wells and William E. Adams Jr. of Gunster, Yoakley & Stewart, P.A., for the Countrywide Defendants.

EILEEN BRANSTEN, J.

Plaintiff Syncora Guarantee, Inc. ("Syncora") moves for partial summary judgment against defendants Countrywide Home Loans, Inc. ("CHL"); Countrywide Securities Corporation ("CSC") and Countrywide Financial Corporation ("CFC", and, with CHL and CSC, "Countrywide").

First, Syncora seeks judgment in the form of a declaration on its " put-back claims." Syncora Memo., pp. 3–4.¹ Syncora seeks a declaration that in order for it to prove its put-back claims it need establish only that a loan breached a representation or warranty in a way that materially and adversely affects "Syncora's interest in the related mortgage loan under Section 2.04(b) of the SSA" [Sales and Servicing Agreement] at the time the representation or warranty was made. Syncora also seeks a declaration that it need not show that the allegedly non-compliant loan was non-performing and that Syncora need not show the cause of the loan's non-performance. Id.

Second, Syncora seeks judgment in the form of a declaration that in order for it to prove its fraud claim, Syncora is not required to show a causal link between the alleged fraud, misrepresentations by Countrywide, and claims payments or loan defaults. Syncora further argues that rescissory damages are an appropriate remedy for fraudulent inducement.

Third, Syncora seeks judgment in the form of a declaration that on its claim for fraud against Countrywide, Syncora need establish only that Countrywide's alleged misrepresentations induced Syncora to issue insurance policies on terms it would not have agreed to had Syncora known of the alleged misrepresentations and the true facts, and that Syncora need not show a causal connection between Countrywide's alleged misrepresentations and Syncora's claims payments made pursuant to Syncora's insurance policies.

Countrywide opposes.

BACKGROUND

Syncora brought this action on January 28, 2009 against the Countrywide defendants. On May 6, 2010, Syncora amended its complaint to add additional claims and Bank of America Corporation as a defendant. Syncora alleges that Countrywide fraudulently induced Syncora to insure five securitizations of mortgage loans originated by Countrywide: four securitizations of home equity mortgage loans ("HELOCs") and one securitization of "closed-end seconds" ("CES") (together, the "Mortgage Loans").

Countrywide sold or conveyed the Mortgage Loans to trusts. The trusts, in turn, issued notes backed by the Mortgage Loans to investors. The investors were promised a return of principal with interest.

The rights and obligations of the parties to the Securitizations are set forth in contracts the ("Transaction Documents"). For the HELOC securitizations, the Transaction Documents provide for the transfer of the Mortgage Loans to a Countrywide affiliate who acted as the "depositor." This transfer was done pursuant to a "Purchase Agreements." Syncora Memo, pp. 2–3, n. 3. The depositor then entered into a "Sale and Servicing Agreement" ("SSA") that transferred the loans to a trust established to hold the HELOCs as collateral and which further engaged CHL to service the Mortgage Loans. Id. For the CES securitization, the process was the same, but the Purchase Agreement and the Sales and Servicing Agreement were combined into one Pooling and Servicing Agreement ("PSA"). Id.

Syncora, for premiums received, insured that payments to the Securitizations' investors would be made. For each Securitization, Syncora issued an insurance policy and, pursuant to the insurance policy, issued a Financial Guaranty Insurance Policy the ("Insurance Policies"). Each Insurance Policy guarantees that should the payments received from the Mortgage Loans be insufficient to cover payments due under the Securities, Syncora would pay the shortfall.

Countrywide also issued Prospectuses and Supplemental Prospectuses in connection with each Securitization. Syncora alleges that Countrywide made representations and warranties in the Transaction Documents, Prospectuses and Supplemental Prospectuses which Syncora relied upon. Syncora alleges that Countrywide made misrepresentations in those representations and warranties, and that Syncora has been damaged as a result.

ANALYSIS

I. Standard of Law

CPLR 3212(e) provides, in relevant part, that "summary judgment may be granted as to one or more causes of action, or part thereof, in favor of any one or more parties, to the extent warranted, on such terms as may be just."

The standards for summary judgment are well settled. The movant must tender evidence, by proof in admissible form, to establish the cause of action "sufficiently to warrant the court as a matter of law in directing judgment." CPLR 3212(b) ; Zuckerman v. City of New York, 49 N.Y.2d 557, 562, 427 N.Y.S.2d 595, 404 N.E.2d 718 (1980). "Failure to make such showing requires denial of the motion, regardless of the sufficiency of the opposing papers." Winegrad v. New York Univ. Med. Ctr., 64 N.Y.2d 851, 853, 487 N.Y.S.2d 316, 476 N.E.2d 642 (1985). Once such proof has been offered, to defeat summary judgment "the opposing party must show facts sufficient to require a trial of any issue of fact." CPLR 3212(b) ; Zuckerman, 49 N.Y.2d at 562, 427 N.Y.S.2d 595, 404 N.E.2d 718. Syncora here moves on legal issues.

II. Arguments

A. Syncora's Claims for Put–Backs/Substitution

Syncora first moves for summary judgment in the form of a declaration that to prove a misrepresentation "materially and adversely" affects its interest in the underlying Mortgage Loan under Section 2.04 of the Sales and Servicing Agreement (SSA) and the loan is therefore allegedly subject to put-back, Syncora need only prove that Syncora's interest in the loan was materially and adversely affected at the time of the misrepresentation—the alleged inaccurate representation or warranty—and it need not prove either that a loan has defaulted or, if it has defaulted, the cause of the default.

Syncora supports its argument by first pointing to the HELOC Series 2006–D Sales and Servicing Agreement (SSA) § 2.04, which states, in relevant parts as quoted and relied upon by Syncora, that:

If the substance of any representation or warranty in this Section made to the best of Sponsor's knowledge or as to which the Sponsor has no knowledge is inaccurate and the inaccuracy materially and adversely affects the interest of the Trust, the Noteholders or the Credit Enhancer [Syncora] in the related Mortgage Loan then, notwithstanding that the sponsor did not know the substance of the representation and warranty was inaccurate at the time the representation or warranty was made, the inaccuracy shall be a breach of the applicable representation or warranty.

Hawthorne Affirm.,² Ex. 7, HELOC Securitization Series 2006–D SSA, § 2.04(b). Section 2.04(d) states, again in relevant part:

The cure for any breach of a representation and warranty relating to the characteristics of the Mortgage Loans in the related Loan Group in the aggregate shall be a repurchase of or substitution for only the Mortgage Loans necessary to cause the characteristics to comply with the related representation or warranty.

Id., § 2.04(d). Syncora further asserts Section 2.10 of the same SSA also supports its argument. Id., p. 5. Section 2.10 directly refers to Mortgage Loans which are not in default or in danger of imminent default, stating, in relevant part, that:

Notwithstanding any contrary provision of this Agreement, with respect to any Mortgage Loan that is not in default or as to which default is not imminent, no repurchase or substitution pursuant to Section 2.02, 2.03, 2.04, or 2.06 shall be made unless the party repurchasing or substituting delivers to the Indenture Trustee and Opinion of Counsel to the effect that the repurchase or substitution would not result in [tax implications].

Hawthorne Affirm., Ex. 7, SSA, § 2.10.

Syncora asserts that the plain language of this contract is conclusive evidence of the intent of the parties and is in clear support of its motion. Syncora further contends that its motion for summary judgment is supported by case law interpreting similar contract provisions, "universal insurance industry practice" and New York statutory and common law of insurance and breach of warranty. Syncora Memo., pp. 3–5.

Syncora argues that section 2.10 provides that a loan need not be in default to be repurchased, but only that an opinion be provided as to tax implications of the repurchase or substitution of the loan. Based upon this provision, Syncora states a repurchase pursuant to Section 2.04 is available whether or not the loan Syncora seeks to have repurchased is in default or default is imminent, so long as a tax implication opinion is provided. Syncora asserts that because a loan may be put back without being in default, whether or not a loan materially and adversely affects Syncora's interest can therefore be determined without reference to whether or not the loan has defaulted, or whether a breach of a representation or warranty caused the loan to default.

Countrywide asserts that the plain language of the Transaction Documents controvert Syncora's argument, and that Syncora has merely selectively relied upon Section 2.10 of the HELOC Series 2006–D SSA, which is found in Transaction Documents in only two of the five securitizations at issue in this case. Countrywide asserts that the parties agreed that the quoted section 2.10...