Unicredit Bank AG v. RKC Fin. Corp.
| Decision Date | 26 June 2014 |
| Docket Number | Case No. 13-2311-SAC |
| Parties | UNICREDIT BANK AG, NEW YORK BRANCH, f/k/a BAYERISCHE HYPO-UND VEREINSBANK AG, as agent for THE BANK OF NEW YORK MELLON, Plaintiff/Counterclaim Defendant, v. RKC FINANCIAL CORPORATION, et al., Defendants/Counterclaim Plaintiffs, v. THE BANK OF NEW YORK MELLON, Counterclaim Defendant. |
| Court | U.S. District Court — District of Kansas |
The plaintiff, UniCredit Bank AG, New York Branch ("UniCredit"), brings this action as the agent of The Bank of New York Mellon ("BONY") to recover on a defaulted securitized loan against RKC Financial Corporation ("RKC") and the guarantors of that loan, Roger and Mary Cunningham (collectively "defendants or counterclaim plaintiffs"). The case comes before the court on the following pending motions: the defendants' motion to dismiss (Dk. 18), the plaintiff's motion to dismiss amended counterclaims and to strike affirmative defenses (Dk. 26), the counterclaim defendant BONY's motion to dismiss counterclaims (Dk. 45); and the plaintiff's motion to dismiss the second amended counterclaims and to strike affirmativedefenses (Dk. 47). For the reasons stated below, the court grants in part and denies in part the defendants' motion and grants the plaintiff's and BONY's motion subject to consideration of a timely motion by the defendants for leave seeking to file an amended pleading.
FACTUAL BACKGROUND
This case is the fourth in a group of related actions filed by UniCredit to recover on defaulted promissory notes held, pooled, sold and securitized by various corporate and business entities flying the Brooke1 flag. As an aid in understanding the court's factual background, here is a useful summary of the securitization process taken from a recent decision by Chief Judge Marten:
A securitization involves two steps, which may occur simultaneously or separately. Initially, an entity that creates loans in its normal course of business (the "Originator") sells its loans to a special purpose entity ("SPE"). The sale will be performed in a manner that qualifies as a "true sale," as opposed to a secured transaction, which is done in part to protect the loans and their streams of revenue from creditors of the Originator. Second, the SPE will issue and sell debt securities, referred to as Notes, to investors. The Notes are secured by the loans the SPE bought from the Originator. Additionally, the SPE will satisfy its obligations on the Notes using the proceeds of the loans it bought from the Originator. When the securitization is "closed," funds flow from the purchasers of the Notes (the investors) to the SPE, and then from the SPE to the Originator.
UniCredit Bank AG, New York Branch v. Deborah R. Eastman, Inc., 2013 WL 237810 at *1 (D. Kan. 2013). Now, it is just a matter of putting names,dates, documents and details to this process after first describing the original loan that was pooled and sold.
Defendants' Loan Documents
On June 29, 2005, the defendant RKC signed a promissory note designated as "loan number 4683" in the amount of $2,700,000.00 for the stated purpose, "[t]o acquire insurance agency assets and purchase buyer's assistance plan." (Dk. 1-6, pp. 1-2). The lender was Brooke Credit Corporation ("BCC"). Id. In support of the note, the parties executed an "Agreement for Advancement of Loan" which set forth the terms and conditions of their contractual relationship involving the loan. (Dk. 1-5). They also executed a commercial security agreement which gave BCC a security interest in RKC's personal property and agency assets. (Dk. 1-7). Also on June 29, the defendant Cunninghams executed a guaranty to secure the RKC loan. (Dk. 1-9). This loan was made in the State of Kansas.
Securitization of Defendants' Loan
As the originator of the loan, BCC funded it from a line of credit issued by a bank under a warehouse arrangement whereby BCC also gave some interest in the loan to the bank and some interest also to Brooke Credit Funding, LLC. Over time, more loans of a similar nature were made and then pooled in the warehouse. (Dk. 1, ¶ 16). BCC and related Brooke entities sponsored securitizations by creating special purpose limited liability securitization companies which were sold the pooled warehouse loans inexchange for cash raised by the securitization companies from the issuing of notes to investors. BCC would sell these loans to the securitization companies under a Sale and Servicing Agreement.
Pursuant to the Sales and Servicing Agreement dated December 1, 2005, BCC sold all of its "right, title and interest in and to the Loans and the Other Conveyed Property relating thereto" to the SPE, Brooke Securitization Company V ("Brooke Securitization" or "Issuer") (Dk. 1-1, p. 19). This Agreement spelled out the transfer in these terms:
[T]he Seller shall sell, transfer, assign, grant, set over and otherwise convey to the Issuer, without recourse (subject to the obligations herein), all right, title and interest of the Seller in and to: (i) the Loans, all monies due thereunder after the Cutoff Date and all Liquidation Proceeds and recoveries received with respect to such Loans; (ii) the security interests in the collateral (including the Agency's Assets, Customer Files and Sales Commissions, if any, securing the Loans; (iii) any proceeds from claims on any repossession loss, physical damage, credit life and credit accident and health insurance policies covering such collateral, if any, or the Obligors; (iv) the Loan File (including the Loan Documents) related to each Loan; (v) the Trust Accounts and all funds on deposit in the Trust Accounts from time to time, and all investments and proceeds thereof (including all income therein) (although the parties hereto acknowledge that the Seller has no interest in the items described in this clause (v)); and (vi) the proceeds of any and all of the foregoing.
(Dk. 1-1, p. 19). RKC's loan promissory note, No. 4683, was in this pool of loans sold to Brooke Securitization on December 1, 2005. (Dk. 1-1, p. 61).
For these loans Brooke Securitization paid cash raised by issuing a series of Notes ("2005-2 Notes") pursuant to an indenture dated December 1, 2005, between itself, as the issuer, and BONY as indenture trustee. TheIndenture spelled out that the Issuer granted a first priority perfected security interest to the Trustee in the following "Indenture Asset Pool:"
All of the Issuer's right, title and interest in and to: (a) the Loans, all monies received thereunder after the Cutoff Date and all Liquidation Proceeds and recoveries received with respect to such Loans; (b) the security interest in the collateral (including the Agency's Assets, Customer Files and Sales Commissions), if any securing the Loans; (c) any proceeds from claims on any repossession loss, physical damage, credit life and credit accident and health insurance policies, if any, covering such collateral or the Obligors; (d) the Loan File (including the Loan Documents) related to each Loan; (e) the Trust Accounts and all funds on deposit from time to time in the Trust Accounts and in all investments and Proceeds thereof (including all income thereon); (f) the Sale and Servicing Agreement, including the right to cause the Seller to repurchase Loans from the Issuer under certain circumstances, the Master Agent Security Agreement and the other Related Documents; and (g) all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing and all payments on or under and all proceeds of every kind and nature whatsoever in respect of any or in lieu of the foregoing, . . . .
(Dk. 1-2, p. 5). RKC's loan No. 4683 was among the loans identified in the Indenture Asset Pool. (Dk. 1-3, p. 31). Thus, the Issuer, Brooke Securitization, owned RKC's loan No. 4683, pledged it and all of the Issuer's assets to secure its obligation under the Indenture to pay the 2005-2 Notes, and granted the Indenture Trustee, BONY, a security interest in RKC's loan and all other loan assets for the benefit of the holders of 2005-2 Notes. UniCredit purchased 58.25% of the 2005-2 Notes.
BONY, as the Indenture Trustee, is the secured party in relation to Brooke Securitization and obtained a security interest in the security interests that secure RKC's loan. As the complaint alleges, the Indenture authorizes BONY as trustee to "(i) collect the funds generated by thecollateral (i.e. the loans in the Asset Pool) under the indenture; (ii) liquidate the collateral following an event of default under the Indenture, the proceeds of which are to be held in trust for holder of the Notes; and (iii) take measures to protect the collateral under the indenture." (Dk. 1, ¶ 33). These terms became operative upon the default events set out below.
This Sales and Servicing Agreement also designated Textron Business Services, Inc. ("Textron") to act as "Servicer" for the Issuer Brooke Securitization. It provides, in relevant part:
The Servicer is hereby authorized to act as agent for the Issuer and in such capacity shall manage, service, administer and make collections on the Loans, and perform the other actions required by the Servicer under this Agreement. . . . The Servicer is hereby authorized to commence, in its own name or in the name of the Issuer (provided the Servicer has obtained the Issuer's consent, which consent shall not be unreasonably withheld), a legal proceeding to enforce a Loan pursuant to Section 3.3 or to commence or participate in any other legal proceeding (including a bankruptcy proceeding) relating to or involving a Loan, an Obligor or the collateral, if any, securing the Loan. If the Servicer commences or participates in such a legal proceeding in its own name, the Issuer shall thereupon be deemed to have automatically assigned such Loan to the Servicer solely for purposes of commencing or participating in any such proceeding as a party or claimant, and the Servicer is authorized and empowered by the Issue to execute and...
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