Federal Hous. Fin. Agency v Morgan Stanley ABS Capital I Inc.
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Federal Hous. Fin. Agency v Morgan Stanley ABS Capital I Inc. 2018 NY Slip Op 31647(U) March 6, 2018 Supreme Court, New York County Docket Number: 650291/2013 Judge: Marcy Friedman Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 1] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 SUPRErvffi COURT OF THE STATE OF NE\V YORK COUNTY OF NEW YORK-PART 60 •»»•»•->.•.»»W»»>»»»»• •-"""""""•••••.»»»»»»»»•-~»-•~ x FEDERAL HOUSING FINANCE AGENCY, AS CONSERVATOR FOR THE FEDERAL HOME LOAN MORTGAGE CORPORA.TION, on behalf of the Trustee of the MORGAN STANLEY ABS CAPITAL I INC. TRUST, SERIES 2007-NCl (MSAC 2007-NCI), Index No.: 650291/2013 DECISION/ORDER Plaintiff, ····against~ MORGAN STANLEY ABS CAPITAL I INC, Defendant. FEDERAL HOUSING FINANCE AGENCY, AS CONSERVATOR FOR THE FEDERAL HOME LOAN MORTGAGE CORPORATION, on behalf of the Trustee of the MORGAN STANLEY ABS CAPITAL I INC. TRUST, SERIES 2007-NC3 (MSAC 2007-NC3), Index No.: 651959/2013 DECISION/ORDER PlaintijJ, -against···· MORGAN STANLEY lVIORTGAGE CA.PITAL HOLDINGS LLC as Successor-by-1\/Ierger to MORGAN STANLEY MORTGAGE CAPITAL INC,, Defendant. ................................,~--·---------------........................--------------~-- x These separate residential mortgage-backed securities (RMBS) breach of contract actions are based upon defendant securitizers' alleged breaches.of representations and warranties regarding the quality and characteristics of mortgage loans held in two Tmsts: .P..forgan Stanley ABS Capital I foe. Trust, Series 2007-NCl (NCl) and Morgan Stanley ABS Capital I Inc. Trust, 2 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 2] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 Series 2007-NCJ (NC3) (collectively, the Securitizations or Trusts). 1 The facts and procedural history of these actions an.~ described at length in this comi's prior decisions on the defendants' I Inc. (2016 \VL 1587345 [Sup Ct, NY County, Apr. 12, 2016, No. 650291/2013] [FHFA LLC, 2016 WL 1587344 [Sup Ct, NY County, Apr. 12, 2016, No. 651959/2013] [fHEA (NC3)] [collectively, the Prior Decisions]), Those decisions were affinned by the Appellate Division in 2017].) In FHFA (NC 1), the initial complaint pleaded three separate breach of contract causes of action against defendant Morgan Stanley ABS Capital I Inc. (MSAC): a first cause of action for breach of representations and warranties regarding the securitized loans; a second cause of action for breach of MSAC's obligation to notify Deutsche Bank National Trust Company (the Trustee) upon MSAC's discovery of breaches of representations and "vvarranties; and a third cause of action for breach and anticipatory breach ofMSAC's purportedly separate obligation to cme or repurchase defective loans. In an amended complaint filed on February 3, 2014, the Trustee added a fourth cause of action against IvrsAC for breach of the implied covenant of good faith and fa1r dealing, based on the same underlying allegations. In ftIFAJN[J), the complaint pleaded t\vo breach of contract causes of action against ckfondant Morgan Stanley Mortgage Capital Holdings LLC, the alleged successor of Morgan Stanley Ivfortgage Capital Inc. l As used in this decision, the word securitizer means sponsor or depositor. The RMBS securitization process is summarized by the Court of Appeals in A~J;;)£~.t;JJI~1J.~~-C_Q!Jl_.__ y__PJL~1rnf1Yr~jjJ~m.gyst.:?,J.n~,. (25 NY3d 58 l, 589 [2015]). The sectiritization process and the roles ofsecuritization parttdpants are also discussed in this court's prior RMBS decisions, and wm not be repeated here. (Se~ t,g, HS_H._N!;mfam.:ik.AJL~:Ji<!Lt;l~i'.~J-J~rus::_PL_C, 20 l 4 WL 841289, * l-2 [Sup Ct, NY County, Mar. 3, 2014, No. 652678/ll].) ·1 ,;,,, 3 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 3] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 (collectively MSMC): a first cause of action for both breach of representations and warranties and failure to cure or repurchase defoctive loans; and a second cause of action for breach of the implied covenant of good faith and fair dealing. In the Prior Decisions, the court dismissed the Trustee's breach ofrepresentations and warranties causes of action, based on the statute of limitations. 2 The court dismissed the Trustee's causes of action for failure to repurchase defective loans, on the ground that the failure to repurchase did not give rise to a separate cause of action. In addition, the court dismissed the causes of action for breach of the implied covenant of good faith and fair dealing as duplicative of the contract daims" 3 This decision concerns the timeliness and viability of the Trustee's claims that defendant MSAC breached its contractual obligations by failing to notify- the Trustee of breaches of representations and warranties. These claims are reforred to in the coordinated RJVfBS litigation as "failure to notify" daims. 4 In the Prior Decisions, and in a number of other substantially 2 Deutsche Bank National Trnst Company is the Trustee of both Trnsts. The Trustee states in its papers on this motion that "Deutsche Bank National Trust Company as Trustee for the MSAC 2007-NCl Tmst and Deutsche Bank National Trust Company as Trustee for the MSAC 2007~NC3 Tmst are legally distinct entities." (Tee. 's Opening l\tfemo,, at 1 n 1.) For purposes of convenience, this decision will refer to both entities as the Trustee, :; The Prior Decisions were based upon the Court of Appeals and First Department decisions in A.\,~E ..S.!1.~'~'-·(QHLY (25 NY3d 581 [2015], aftg 112 AD3d 522 [1st Dept 2013] [ACEJ), discussed in greater detail below. With respect to the Trustee's breach ofrepresentation and wruTanty claims, the court held !hat FHF A, the entity-a certificai:eholder's conservator-that had initially filed the summonses with notice on behalf of the Trusts, had not complied with the no-action clauses in the governing agreements before bringing suit, and therefore lacked standing to commence either action, (FHFA jNC l !, 2016 \VL l 587345, at * 4.) The court further held that the Trustee's pleadings, filed more than six-years after the closing dates of the Securitizations, did not relate back to FHFA's summonses with notice, and were therefore untimely to the extent that they alleged breaches of representations and warranties, GJI,) With respect to the Trustee's claims for fallure to repurchase, the court reasoned that, under the Court of Appeals decision in ACE, there can be no separate cause of action for a securitizer's failure to repurchase loans affected by breaches ofrepresentations and warranties. (Id., at* 10.) Q_J;t~itrn:,;;:,mrQgJ'J:Q__QJi."Jm~, 4 By Order of the Administrative Judge, dated May 23, 2013, this court was designated to hear "all actions hereafter brought in this court alleging misrepresentation or other wrong in connection with or arising out of the creation or sale of residential mortgage-backed securities." The RMBS breach of contract or "put-back" actions have been proceeding on a coordinated basis in this Part. 3 4 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 4] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 similar decisions in the .Rtv1BS litigation, 5 this court deferred decision on whether the trustees had pleaded or could plead timely failure to notify claims. The court requested coordinated briefing on the scope and viability of such claims following a then-recent decision of the Appellate Division, which recognized an independent contractual cause of actiem based on a securitizer's failure to notify the trustee of its discovery of breaches. (NQ'!IHU:!':l:JI~m1~.fam.HY tn:mJm,'t~ 30 NY3d 572, 2017 WL 632110 [NY, Dec. 12, 2017]; Morg~£lnJ~~f!11k~):'.. MltL~.,J~.Q.~1n 2016], appeal dq~k~J~g No. APL-2016-00240 [MQDM!!l..S..1m1h~i! [decided after fHE6J.tiGJ} and FHFA (NC3)]; ~m!k ofN.Y. .M~l!.Pn..Y.WM.C.. Mt~L~_,_,__L.L.C, 151 AD3d 72) 81 [1st Dept 2017] [PNTh1J; Second Case Management Order, dated Mar. 24, 2016, § V [Index. Nos. 777000/2015] [NYSCEF No. 96].) In connection with this briefing, the court granted leave to defendant MSAC in FHFA ili.QD to renew its motion to dismiss the Trustee's failure to notify claim. The court also granted leave to the Trustee in FHFA (NC3) to move to amend its complaint to add a failure to notify claim. The parties to the coordinated litigation subsequently decided to argue these motions as "bellwether cases" with respect to the scope and viability of failure to notify claims. This decision is the first in which this court has addressed failure to notify claims follm¥ing the Appellate Division decisions in Nmxrm;~, l~d.m:&lill ..SJ@P.-1~)\ and .J2.NYM, which are discussed in detail below. See~ Et~!~.rnLHgJ1.~,..fin,_Amms;}~.Y..NQY~ti9n__(;QDJJl_@_i~;i,_Jl1g_., 2017 WL 6025527 (Sup Ct, NY County, Nov. 30, 2017, No. 650693i2013); f~~k.rnL!JQµ_~_,__ fi_n,J\g.~m;:y_y_ E~g-~:r_~JH@_::;_._.fiJ1,_.Ag.Y..nRY.}'JiS11CJ'.'.!!.k.CQXI~,, 2017 WL 1479480 (Sup Ct, NY County, Apr, 25, 2017, No. 651627/2013); f~.d~.rn.lJ:iQJ,§,__J:'..in_,_A_g_~!t9.:.t..YJJ_J.1~i..RY..!llJ;';!lt?.ct.~ s_~g-~0_,Ju_g_,, 2016 WL 4039321 (Sup Ct, l'l<'Y County, July 27, 2016, No. 651282/2012); E_~g~.rg_LQ.Q!!~....fin, ..Ag?..nRJY EquiFirst Corp., 2016 vVL 3906070 (Sup Ct, NY County, July 19, 2016, No. 650692/2013). 5 4 5 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 5] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 ~£1.CKGROUND Although these cases involve separate RMBS Trnsts, the complaints and governing agreements in each action are materially similar. The defendant in FHFA (NC3), MSMC, was the Sponsor of both Secmitizations. (NC3 Proposed Am. Compl., i!9\f 11, 17 [\Veinstein Aff. In Supp., Exh, 5]; NCI Am. CompL, ii 14.) The defondant in FHFA (NCl), MSAC, served as the Depositor for both Secmitizations. (NCI Am. Compl., if~ 1-2, 14-15; NC3 Proposed Am. Compl., ~ 17.) Federal Housing Finance Agency (FHFA), acting as conservator for The Federal Home Loan Mmigage Corporation (Freddie Mac), a certificateholder in both Trusts, commenced the actions by filing a smmnons with notice in t:HEbJNCl} on January 25, 2013, and in FHFA (NC3) on l'.vfay 31, 2013. The Trustee subsequently :filed complaints and sought to substitute itself as plaintiff in both actions. The NCl and NC3 Securitizations closed, respectively, on January 26, 2007 and May31, 2007. (NC1 Am. Cornpl. ~ 12; NC3 Proposed Am. Compl. ,[ 17.) MSAC in FEWA (NCI}, and MSMC in FB.FA {~.G~), made numerous representations and warranties about the quality and characteristics of the underlying mortgage loans or "backed" representations and warranties made by another party. These representations and warranties were stated to be true as oft.he closing dates< (See NCl Am. CompL, ,rir 20-21; NCI Pooling and Servicing Agreement [PSA], §§ 2.03 (b), (f) & Sched. III [\Veinstein Aff In Supp., Exh. 3]; ]'JC3 Proposed Am. CompL, ii 25; NC3 Representations and Warranties Agreement [R\VA], §§ 2, 4 (a) & Exh. 1, Parts A-B [Weinstein Aff. In Supp., Exh. 7]; NC3 PSA, § 2.01 raJ [\Veinstein Aff. In Supp., Exh. 6]; se~ also Tee.'s Opening Memo., at 4 [describing the relevant agreements and provisions], 6) 6 As used herein, "Tee.'s Opening Memo." refers to the Trnstee's Memorandum of Law in Opposition to Defendants' Motion to Dismiss the MS.AC 2007-NCI Complaint and in Support of the Trustee's Cross-Motion to Amend the MSAC 2007-NC3 Complaint "Defs,' Opening Memo." refers to the Memorandum ofLmv in Support 5 6 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 6] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 As is typical in Rlv1BS transactions, the agreements governing each of the Securitizations set forth a "repurchase protocol" in which, upon either notice to or discovery by MSAC in FHFA .CNCJ) or MS!v1C in FHFA CNC3) of any breach of a representation or wa.ITanty that materially and adversely affected the value of any mortgage loan or the interest of the Trustee or certificateholders, the respective defendant was required to cure, substitute, or repurchase such !oan(s). (NCl PSA, § 2.03 [fj; NC3 RWA, § 4 [a].) The repurchase protocol (and, in fHFA [NC1], related indemnification obligations) was the sole remedy available to the Trustee for such breaches. (NC1 PSA, § 2.03 [m_J; NC3 RWA, § 4 [c].) 7 The PSA governing each Securitization also required MSAC to notify the Trustee of any breaches of representations and warranties 1t discovered. (NCI PSA § 2.03 [d]; NC3 PSA § 2.07.) It does not appear that MSMC had a of Defendants' Renewed Motion to Dismiss Plaintitl's MSAC 2007-NCI Amended Complaint and Opposition to Plaintiff's Motion to Amend its MSAC 2007-NC3 Complaint. 7 Section 2.03 (t) of the NCl PSA provides, in pertinent pait: "Within 90 days of the earlier of either discovery by or notice to the Depositor [MS.AC] of any breach of a representation or warranty set forth on Schedule HI hereto that materially and adversely affects the value of any Mortgage Loan or the interest of the Trustee or the Certificateholders therein, the Depositor shall use its best efforts to promptly cure such breach in all material respects and, if such defect or breach cannot be remedied, the Depositor shall purchase such Mortgage Loan at the Repurchase Price or, ifpennitted hereunder, substitute a Substituted Mortgage Loan for such Mortgage Loan." Section 2.03 (m) further provides that "[i]t is understood and agreed by the parties hereto that the obligation of the Depositor or the Responsible Party [non-party NC Capital Corporation] under this Agreement to cure, repurchase or substitute any Mmtgage Loan as to which a breach of a representation and warranty has occurred and is continuing, together with any related indemnification obligations set forth herein, shall constitute the sole remedies against such Persons respecting such breach available to Certificateholders, the Depositor (if applicable), or the Tmstee on their behalf." Section 4 (a) of the NC3 RWA provides, in pertinent pait: "Within sixty (60) days of the earlier of either discovery by or notice to the Sponsor [MSMC] of any breach of a representation or warranty which materially and adversely affects the value of the Mortgage Loans or the interest of the Depositor therein, . , , the Sponsor sball cure such breach in all material respects and, if such breach cannot be cured, the Sponsor shall, at the Depositor's option, within sixty (60) calendar days of the Sponsor's receipt of request from the Depositor, repurchase such Mortgage Loan at the Repurchase Price." Substitution ofloans is also permitted for certain breaches. (Id.) Section 4 (c) provides that "[i]t is understood and agreed that the obligation of the Sponsor set forth in ~~-~tfon_4{?) to repurchase for [sic] a Mortgage Loan in breach of a representation or warranty contained in S_~i;fo:m__~ constitutes the sole remedy of the Depositor or any other person or entity with respect to such breach." Section 2.0 J of the NC3 PSA conveys the Depositor's "right, title and interest" in the Trust Ftmd to the Trustee for the benefit of the certificateholders. The definition of the Trust Fund. includes "the Depositor's rights under the Representations and WaiTanties Agreement." 6 7 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 7] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 similar notification obligation. 8 The Trustee pleaded in both actions, among other things, that numerous loans were affected by material breaches of representations and wananties, and that defendants failed and/or refused to repurchase such loans. (See NCl Am, CompL, ~179-92, 103-116 [pleading such claims against MSAC only]; NC3 Compl., ~~ 60, 64 [pleading such claims against MSMC only],) The Trustee in FHFA (NCI) also pleaded that defondant MSAC breached its duty to notify the Tmstee upon its discovery of breaches of representations and warranties. (NC1 Am. Compl., ~1193-102.) As stated above, the complaint in FHFA (NC3) did not plead a failure to notify claim against MSMC, the sole defendant in that case. Although the parties' briefing refers to "defendants" collectively, as "Morgan Stanley," a close review of the record reveals that the Trustee does not in fact seek to plead a failure to notify claim against MSMC in either action-not even in FHFA (NC3), in which MSMC curnmtly is the sole defendant Rather, the Trustee opposes dismissal of its failure to notify claim against MSAC in FHFA-iN~JJ, and seeks to amt~nd the complaint in FHFA (NC3) to plead a fai.Iure to notify claim against MSAC in that action. MSMC's interest in these rnotions thus is not immediately apparent. The court will nonetheless follow the parties' convention in 8 Section 2.03 (d) of the NCl PSA provides, in pertinent part: "Upon discovery by any of the pmties to this Agreement of a breach of any of the foregoing representations and warranties that materially and adversely affoct the value of any Mmtgage Loan or the interest o:fthe Trustee or the Ceitificateholders therein, the party discovering such breach shall give prompt written notice to the other parties." Section 2.07 of the NC3 PSA similarly provides, in pertinent part: "Upon discovery by any of the parties hereto of a breach of a representation or wmTanty made by the Sponsor pursuant to the Representations and WaITanties Agreement, the party discovering such breach shall give prompt \Witten notice thereof to the other parties to this Agreement and the Sponsor." After providing for such notice, section 2.07 states that "[t]he Trustee shall pursue all legal remedies available to the Tmstee with respect to such breach tmder the Representations and Warranties Agreement, as may be necessary or appropriate to enforce the rights of the Trust with respect thereto, ifthe Trustee has received written notice from the Depositor directing the Tmstee to pursue such remedies." Although these agreements imposed notification obligations upon MSAC, as a party to the PSAs, MSMC (the Sponsor) was not a paity to the PSAs. The parties have not cited any contractual provision imposing an express contractual obligation upon MSMC to notify tbe Trustee of its discovery of breaches ofrepresentations and '1-Yarranties. 7 8 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 8] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 referring to "defendants"' argurnents in this decision. D IS~JJiiSJQN A. BACKGROUND QJY F A!UJR~ TP NQJ]f.Y..C.kAI~t1i The failme to notify claims asserted or sought to be asserted by the Trustee in these actions cannot properly be addressed without careful consideration of the Court of Appeals decision in ACE and the Appellate Division's more recent decisions in Ngmur?.c, fyfg_rgf:ln .S..till1kJ., and ;BNYM. As discussed further below, ACE, among other things, rejected the claim that a defendant secur1tizer' s breach of its repmchase obligation gives rise to a cause of action independent of a cause of action against the securitizer for breach of representations and warrantfos, The Appellate Division decisions accepted the claim that a defendant securitizer's or originator's breach of its obligation to notify the trustee of its discovery of breaches of representations and warranties does give rise to an independent cause of action. 1. Th~LAGJ;;__ p_~gi~iqn In ACE (25 NY3d 581, supra), the Court of Appeals determined the accrual date of a breach of contract claim against an RJvfBS securitizer (there, a sponsor) "based on [the sponsor's] alleged material breach ofrepresentations and \Va.rranties and failure to comply with its contractual repurchase obligation." (Id., at 592.) The Court held that the plaintiff trustee's claim accrued whtm the representations and warranties at issue were made-there, "the point of contract execution!' (kL, at 589.) In support of this holding, the Comt cited extensive precedent that "the 'statutory period oflimitations [for a breach of contract claim] begins to nm from the time \Vhen liability for wrong has arisen even though the injured party may be ignorant of the existence of the \:YTong or injury."' (Id., at 594, quoting .Eh::Q_:r_µi_.k;?h:;mk._Cp,___y__B::mk,QfM_~mtreat 81 NY2d 399, 403 [1993l) As explained by the Court: "Where, as in this case, representations 8 9 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 9] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 and \Varranties concern the characteristics of their subject as of the date they are made, they are breached, if at all, on that date .... " (kL, at 589.) 'Whether or not the trustee or any party 1vas then aware of defocts in the loans, the remedy of repurchase was available as of that date. The Court further held that the defendant sponsor's "refusal to repurchase the alk~gedly defective mortgages did not give rise to a separate cause of action!' mt) The Court rejected the plaintiff's view of the "repurchase obligation as a distinct and continuing obligation that [the sponsor] breached each time it refused to cure or repurchase a non-conforming loan" or, stated differently, as "a separate promise of future performance that continued for the life of the investment (Le,, the mortgage loans)." (Id., at 594.) Although the Court noted that "parties may contractually agree to undertake a separate obligation, the breach of which does not arise until some future date," the Court determined that "the repurchase obligation undertaken by [the sponsor] does not fit this description." (Id.) The Court distinguished its prior decision in :BgJ.g_y11jY~t~J1. .C9-"-yJ;;:_~fot~a:J~~2ttL (46 NY2d 606 [1979]), a case in which the plaintiff had sued to enforce a repair clause in a contract for the sale of a roof. The Court noted that the defendant roof seller in t~!Jkrygj~{~t~h had "not merely guarantee[d] the condition or perforn1ance of the goods [roofing materials]" supplied by it as of the time of contractingo The defendant had also made a "separate and distinct promise" to perform a future "service"-namely, to "make any rt~pairs that may become necessary to maintain said Roof." (ACE, 25 NY3d at 595 [internal quotation marks, citations, and ellipses omitted].) The Comi reasoned that «[t]he remedial clause in fi!Jl~IYf:l:. . W,~1911 expressly guaranteed fi1:1m:~ perfom1ance of the roof and undertook a promise to repair the roof if it did not satisfy the seller's guarantee." mt~ [emphasis in original].) This separate promise in ~11.k~:rn. . :YY11t..Qh was "a critical cmnponent of the parties' bargain and a special, separate and additional incentive to 9 10 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 10] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 purchase the defendant's product." (Id. [internal quotation marks and citation omitted].) The Court further held that the sponsor in ACE, in contrast, "never guaranteed the future performance of the mortgage loans," (Id.) The sponsor's "cure or repurchase obligation \Vas the Trust's remedy for a breach of[] representations and warranties" and "could not reasonably be viewed as a distinct promise of future performance. It was dependent on, and indeed derivative ot: [the sponsor's] representations and warranties, which did not survive the dosing and were breached, if at all, on that date." (Id.) The Court noted that, "[i]fthe cure or repurchase obligation did not exist, the Trust's only recourse would have been to bring an action against [the sponsor] for breach of the representations and \Varranties," and that such an action."could only have been brought '\vithin six years of the date of contract execution." (Id., at 596.) The repurchase obligation was thus "an alternative remedy, or recourse, for the Tmst, but the underlying act the Trust complain[ed] of [wa]s the same: the quality of the loans and their conformity with the representations and warranties." mt [emphasis in original].) The Court also rejected the plaintiff's contention "that the cure or repurchase obligation was a substantive condition precedent to suit that delayed accrual of the cause of action" for breach of representations and warranties, and that the plaintiff ~'had no right at law to sue [the sponsor] until [the sponsor] refused to cure or repurchase the loans. , , ," (Id., at 597.) The Court referred to this contention as the plaintiff's "strongest argmnent," but held that the argument "ignore[d] the difference between a demand that is a condition to a party's n~r.fQnnf!:n.GY., and a dernand that seeks a remedy for a preexisting vvrong, '' (Id. [emphasis in original].) "[W]here a legal wrong has occurred and the only impediment to recovery is [] di~9.Q.Y~IY. of the '\l\iTong and notice to the defondant, the claim accrues immediately." (Id. [emphasis in original].) The Comi contrasted that situation "to one in which a demand was a 10 11 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 11] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 part of the cause of action and necessary to be alleged and proven, and without this no cause of action existed.'' (Id. [internal quotation marks, citation, and ellipses omitted].) The Court reiterated that "[t]he Trust suffered a legal VvTong at the moment [the sponsor] allegedly breached the representations and warranties." (Id.) The Court summarized its holdings as foHows: "In sum, [the sponsor's] cure or repurchase obligation was not a separate and continuing promise of future perfonmmce; rather, it was the Tmst's sole remedy in the event of [the sponsor's] breach ofrepresentations and warranties. Viewed in this light, the cure or repurchase obligation was not an independently enforceable right, nor did it continue for the lifo of the investment. ... Moreover, [the sponsor's] failure to cure or repurchase was not a substantive condition precedent that deferred accrual of the Trust's claim; instead, it was a procedural prerequisite to suit"9 (Id,, at 598-599.) 2. Iri!iLCgm1J2.~.Qi~iQn.i?..A~grn~@ing_ffcl:i11:r~ _ __ NqtiJ:y_Cl~im~ _tg fQUQ1YingJh~,i~JJU2~gi~ion As the Trustee correctly argues on these motions, ACE did not address or involve a breach of contract claim based on an RJVIBS securitizer's obligation to notify the trustee of breaches of representations and warranties. Both before and after the ACE decision, however, Courts faced with such claims repeatedly concluded that a securitizer's obligation to notify a trustee of defective loans-like its obligation to repurchase such loans-is pm:t of the trustee's contractual remedy for breaches of representations and warranties, is "dependent on, and indeed derivative of, [the] representations and warranties" (see 25 NY3d at 595), and is therefore not a "separate and continuing promise of future performance" or "an independently enforceable righf' subject to its own accmal mles. (See id,, at 598-599.) 9 Based on its holding that the Tmst failed to fulfill the condition prec:edent, the Court declined to address the issues of standing and relation back that were also disputed by the parties. (ACE, 25 NY3d at 599.) 11 12 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 12] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 In Mrn:&;ftn..S1!!nJ~x..l\'.fa?JiE~.&~--LQmJ:.Inl'..~t.2.<H!.6.:-JJ.ARX..Y.MQn,mn..S.t~ml~y__ fy1m:1tMJ..g~ _h_~pita) H_olgjggs LLC (2014 \VL 4829638, * 2 [Sup Ct, NY County, Sept 25, 2014, No. 653429/2012], revd 143 AD3d at 7), this court reasoned that, under the Appellate Division's decision in ACE (112 AD3d 522, supra), a sponsor's non-compliance with a repurchase protocol, a mere remedy, does not give rise to an independent breach of contract by the sponsor. This court further held that a cause of action for a sponsor's failure to notify the trustee of defective loans is yet another way of asserting that breaches of the repurchase protocol constitute independent breaches of the contract which are not subject to the limited (that is, sole) remedy for breaches of representations and warranties agreed to by the pruties. The court adhered to this decision in later decisions. (See ~ R.~.ll1~~:11~..~fillli..N.~!L.In1~LCg,__y__fl~g~!~LC.m2il~L~!k1~, Co;rn., 2015 WL 1646683, * 3 [Sup Ct, NY County, Apr. 13, 2015, No. 653048/2013], affd on other gr:g:yn_g~ 143 AD3d 15 [1st Dept 2016]; L<J}Y_:P~h~ntr1,ri,?_.Irn~tC~),__ 9fN,Y, _ __:PLLM_tg~, _y Cm~i1~1, InQ,_, 2015 WL 1573381 [Sup Ct, NY County, Apr. 8, 2015, No. 651958/2013]; U.S. l?Jmk_Nf~tLA~~;n,_y;QLLlYltg_~,"£.~Pi1~tJn.Q,., 2015 \VL 298642, * 2 [Sup Ct, NY County, Jru1. 16, 2015, No. 652699/2013].) This reasoning \Vas consistent with that of other Courts after ACE. (See B.<iP.:k ..QfN,Y, M~.UQrtY.~~M.C.Mt,gJ~_,,__11~ (50 Misc3d 229, 236-237 [Sup Ct, NY County, Sept. 18, 2015, No. 653831/2013, Kornreich, J.] [holding that the defendant's obligation to notify and the repurchase obligation "both are components of the n.~purchase protocol" and that, "[a]fter i\CE, the notion that a separate failure to notify claim is viable should be put to rest"], IDQJJ 151 AD3d 72; Fedgral c, 2015 WL 9450833, * 3-4 [SD NY, July 10, 2015, No. H9Jt~J~'in. Aft~9S.,Y,__WM_{;__h:Hg~_,,.11. 13 Civ 584, Hellerstein, J.] [holding that ACE did not addres.s the accrnaI of a failure to notify claim, but that the ACE Court's reasoning applies; that the duty to notify is "an obligation 12 13 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 13] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 dependent on and derivative of the representations and \Varranties"; and that "[i]f the duty to cure or repurchase, which is the sole remedy available for a breach of the representations and warranties, expired after the six-year statute of limitations period had nm, an ongoing duty to notify which lasted for the lifotime of the mortgages would yield no relief for the aggrieved parties"].) The legal landscape regarding failure to notify claims changed abruptly with the Appellate Division held that this court had "correctly declined to permit plaintiffs to pursue damages for defendant's failure to repurchase defective loans (see l~,G~__Sg_Q,___{;.QJ:fo_, 25 NY3d at 589)." (NQJll!JJ:f!, 133 AD3d at 108,) The Court fmther held, without discussion, that this court had «erred in not allov.ing plaintiffs to pursue damages for [the] dt.~fondant's failure to give prompt written notice after it discovered material breaches of[] representations and warranties .... " (kt) Although the Court thus distinguished between the repurchase and notification obligations, it did not expressly address the impact of ACE on the viability of a cause of action based on the notification obligation, and did not expressly hold that a securitizer's failure to notify a trustee of defoctive loans may fom1 the basis for a separate and independent cause of action for breach of contract. The Appellate Division clarified N9P1.W.~ in MP1$l.fill Stc:~nl~_y. The Court characterized its prior decision in N9JX11JJR!: as "holding that, .. a seller's failure to provide the trustee with notice of material breaches it discovers in the underlying loans states an independently breached contractual obligation, allowing a plaintiff to pursue separate damages. (Norrmr~, 133 AD3d at 108)." (~for~~?TI,St~nJ~y, 143 AD3d at 7.) The Court then modified this court's decision to the 13 14 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 14] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 extent of reinstating the dismissed failure to notify claims. (Id.) The Mm:gm:U~tf:l:nl~y Comt did not address ACE It appears, however, that the Court rejected this court's reasoning that the notification obligation, like the repurchase obligation, is part of the repurchase remedy and, under ACE, does not support an independent ca.use of action, Finally, in ;BNYM, the Appellate Division modified the decision of the trial court (Kornreich, J.) to the extent, among other things, ofreinstating a failure to notify claim by the plaintiff securities administrator against the defendant servicer. The Court reaffirmed that "the contractual obligation to notify [i]s independent of the warranty obligations," and characterized its prior decisions as holding that "claims for failure to notify \.Vere not claims 'respecting a warranty breach' subject to the 'sole remedy' clause" of the governing agreements in those cases. (151 AD3d at 81,) In support of a further holding that the failure to notify claim against the servicer did not "contravene the Court of Appeals' decision in ACE," the Court reasoned that "the servicer is not subject to the repurchase protocol at all," and that, "[a]s a result, because [the servicer] has no obligations under the repurchase protocol, that protocol cannot bar a cause of action against it for an independent duty to notify." (Id.) B. IHE i:\o:~JlUtH-· I~. .Jll:t:~foR:JJi? F.'\JkuBJ;~.:mJ'.'::fQnrx.!:1bIM~JNTHE~t;;.Ac.:noN~ The Trnstee argues that, although its underlying claims for breaches of representations and warranties are time-barred and its claims for failure to repurchase are not viable, it has timely claims based on MSAC's failure to notify it of breaches, Defendants argue that the failure to notify claim in FHFA (NCI) and the proposed failure to notify claim in FHFA (NC3) are barred by the statute of limitations. More particularly, defendants contend that failure to notify claims are subject to the same statute of limitations as claims for breaches of representations and warranties, and accrue on the 14 15 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 15] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 date on which the underlying representations and warranties are made. Defendants reason that the obligation to notify is "dependent on and derivative of the underlying claims for breach of R&Ws [representations and warranties]," "goes hand in hand \Vith the duty to cure or repurchase," and is "designed to remedy the underlying harm, \Vhich is the existence of allegedly breaching loans in the Trust" (Defs.' Opening Memo,, at 3, 10-11, 13.) Defendants accordingly assert that "[i]f, as the Court of Appeals held in ACE [],fa.Hing to repurchase a breaching loan does not give rise to a separate accrual, then failing to notify the Trustee that a loan is in breach and subject to repurchase certainly cannot do so." (Id., at 11.) Th{.~ SJfJJ11~y, Trustee cmmters that, under the AppeHate Division holdings in N2mJITC!: and M~?XJ{C!:K! breach of the duty to notify gives rise to a contract claim independent of: and separate from, a claim for breach of representations and wananties. (Tee,'s Opening Memo., at 2.) The Trustee contends that, "[b]ecause the duty to notif)r is a separate and independently enforceable obligation, it has its ovvn statute of limitations, which does not start to nm until that senarat~ QQh~i',~Jim:J is breached. As a result, the earliest that breach could have occurred-and the earliest the statute of limitations could have begun to run-is after [MSAC] discovered the defective loans but failed to notify the Trnstee," (Id,. at 3 [emphasis in original].) As a threshold matter, based on the Appellate Division holdings in NRmllrn and M~)J;gm~ Stanley that failure to notify claims are separate from and may be asserted independently of breach of representation and warranty claims, the court must reject defendants' contention that the accrual date of the failure to notify and breach of representation and warranty claims is necessarily the same-that is, the date on which the representations and wananties were made. This conk~ntion presupposes that the notification obligation, like the obligation to repurchase defective loans, is merely part of the Trusts' remedy for breach of representations and warranties, 15 16 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 16] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 and is barred by ACK As discussed above, in l\1.Qif;'JJ.XLSl~mky, the Appellate Division appears to have rejected this reasoning, which had been accepted by this court. (143 AD3d at 7, revg 2014 WL 482963&, at* 2,) The court further rejects defendants' apparent contention that the Appellate Division's Dept 2016] same. (S~f,'. LQr~.~nPQlI!!D determined that the accrual date fr)r the two causes of action is the Defa.' Reply Memo., at 8-10,) That case, which involved a breach ofrepresentations and 1.varranties claim by a trustee against an originator, neither discusses the accrual of a failure to notify claim against the defendant nor suggests that such a claim accrues on the date the representations and warranties are made. Rather, the Court in Qrn~_nr_gj;gJ addressed the separate question of whether wTitten notice to fl: g~f~mlm1t. of breaches of representations and warranties is a condition precedent to a put-back claim by a trustee, \..vhere the trustee alleges the defendant's independent discovery of breaches. 10 The Court held that the defendant's obligation to repurchase defective loans could be "triggered-in one of two ways"---dther by notice of a breach or by its independent discovery of that breach, The Appellate Division then held that "[r]egardless of when GreenPoint discovers a breach or is notified of the nonconforming mortgage, the breach of contract cause of action accrues on the date of the closing of the underlying transaction, which is when the representations and warranties were made"" (Id., at 85,) The plaintifftrnstee in Qrn~nJ:9Jnt had not notified the defendant originator, prior to the commencement of the action, "that any of the loans it had originated were in breach of its representations and warranties; nor was any demand made for GreenPoint to cure or repurchase any of the mmtgages." lliL at 83.) Rather, "(t]he summons with notice refer[red] to a breach of contract claim solely predicated on defendant's knowing about the nonconfom1ing mortgages at closing," (Id.) In considering the trustee's claim for breach ofrepresentations and warranties, the Court framed the issue as "whether a breach notice is required when the underlying contract claim is based upon a defendant's independent discovery or knowledge of the nonconforming mortgages." (Jd., at 81.) 10 16 17 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 17] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 Although the Appellate Division cited NQDI!Jrn and MS?J.g~n Stanley in support of its holding that there are two independent "trigger[s]" of the defendant's repurchase obligation, the claim at issue in Q:r~_©DPQln1 vvas the trustee's claim for breach of representations and vvammties, and the notice at issue was the trustee's notice (or lack thereof) to the defendant of breaches, not the defendant's notice to the trustee of breaches. Thus, nothing in the Court's holding addresses could fonn the basis of a separate cause of action for breach of contract 11 Nor, since .Gr.~\';p,P.Q_ipJ, has the Appellate Division detern1ined that a failure to notify daim accrues when the representations and v\larranties are made. N~ii~i~_RY.f!LE~_t~t~__ Cgpit~l '.IrY~tJQQ]::HE2__yJ;Jatixis RJ?~Lt;state Holding_~,__11C (149 AD3d 127, 138-139 [1st Dept 2017]), decided after the parties to this case briefed the impact of the Q:r.~~DP.Q)nt decision, applies an analvsis similar to GreenPoint and cites Nomura and Moman Stanlev in the same mrumer--that "" •-•••••••••••••••••••••••••••• ••••••••••••••••••••• •••HH••••,-.'>HH••HH••••HH~H~~~"~ is, in support of the Court's holding that discovery al1d notice were independent triggers of the defendant's (there, the sponsor's) repurchase obligation, That decision also does not address the accrual of failure to notify claims. In BNYM (151 AD3d 72, sugra), the Appellate Division in fa.ct permitted maintenance of a failure to notify claim against a servicer where no timely breach of representation and v\rru-rru1ty claim was asserted against the party (there, the originator) that made the representations and warranties. The case did not, however, discuss the accrual date of 11 This reading of the Qrn~_WQ!!1t decision is not altered by the fact that the decision, in describing the background of the dispute, quoted allegations from the complaint that the defendant originator had "'breached its contractual obligations to provide notice to the Trustee of the breaches .... " (See Grn~I!£Qj!)J, 147 AD3d at 84.) Although it appears from those quoted allegations that the trustee in .GI~.!(J!EQiJJJ pleaded a failure to notify claim, nothing in the decision indicates, and defendants do not argue on the instant motions, that the accrual of the failure to notify claim was at issue in that action, or that the Qrn.~T\fgJnt trustee argued on appeal that its failure to notify claim accrued differently than its claim.s for breaches of representations and vvarranties. As Nomura and MQf~1lll.. S..tm1t!(S address the viability of an independent failure to notify claim, and not the bases on which the separate breach ofrepresentations and wan-anties claim may be maintained, the .Grn~.WQi!lt Court's citation of Nomura and Morn:an Stanley on tbe latter issue has perhaps led to confusion. 17 18 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 18] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 the failure to notify claim. 12 As the Appellate Division has not to date expressly addressed the accmal of the separate failure to notify claim that the Court has recognized, this court must do so by applying traditional accrual precepts. It is well settled that a legal claim does not accrue 1.mtil "a party c[an] obtain reliefin [1995],) A claim for breach of contract, specifically, does not accrue u:n·til "the time of the NY2d 395, 403 [1975] ["[I]n contract actions the statute [oflimitations] rnns from the date oft.he breach of performance of the contractual obligation"].) It is further settled that "[t]he contractual language fixes the boundaries of the legal [1993].) As is typical in RL\.1BS governing agreements, the PSAs here required MSAC to give "prompt written notice" to the trustee "[u]po:n discovery ... of a breach" of representations and warranties that materially and adversely affects the value of the loan or the interests of the c.ertificateholders, (See PSAs, quoted supra, at 6-7 n 8.) The express terms of these unambik,ruous provisions support the Trustee's contention, and the court ho.Ids, that a defendant does not breach its notific.atfon obligation until it discovers a breach of representations and 12 As discussed above, the BN'YM Court held that ACE did not bar the independent claim against the servicer "because [the servicer] [wa]s rm! subject to the repurchase protocol. ... " (Id., at 8 L) The trial court had dismissed the fatlure to notify claims against the servicer, sponsor, and originator. The Appellate Division decision discussed only the claim against the servicer, which it reinstated. In Nomura, the Appellate Division reinstated an independent failure to notify daim against a securitizer that it held was subject to the sole remedy clause for breaches of specific representations and warranties, but not for breaches ofa so~called "no untrue statement" representation. {133 AD3d at l 07~ l 08.) (The Court of Appeals subsequently held that the sole remedy clause applied to both categories of breaches identified by the Appellate Division. [See Nomura, 2017 WL 6327110, at* 5].) ln IHiX:M, the Appellate Division characterized its decisions in M9Hl~mJ~.11X!l~i' and Nomura as holding that "claims for failure to noti:(y were not claims 'respecting a warranty breach' subject to the 'sole remedy' clause." (BNYM, 151 AD3d at 81.) In N.9.rrrnrn and M!.,'.:fg§n.S.t~nl~y:, there were timely breach of representation and warranty claims. ln B~);'.M, there were not. The parameters of the failure to notify claim have thus not yet been fully defined by the Appellate Division. 19 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 19] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 2016] as ' s repu.rc11ase prev1ous~';/ 19 20 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 20] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 approach"; and that "[a]cc:ordingly, New York does not apply the 'discovery' rule to statutes of limitations in contract actions." (frt, at 593-594 [internal quotation marks and citations omitted].) These policies vvere also relied upon by this court and the Appellate Division in declaring an '"accrual clause" unenforceable in t1'1K~l'1!"· In that case, a trustee brought claims for breaches of representations and warranties against fill originator more than six years after the securitlzation closing date on which the representations and warranties were made. The plaintiff argued that its claims were timely because an accrual cfause in the governing agreement purported to delay their accmal until three conditions were satisfied: discovery by the defendant of a breach (independently or by notice to it); failure to cure, substitute, or repurchase; aild demand upon the defendant for compliailce with the agreement GS-~~ flf&g~!~r, 14 3 AD3d at 17- l!L) The Appellate Division rejected that argument, holding "that the acc:rnal provision is unenforceable as against public policy .... " (Id., at 16, citing ACE, 25 NY3d at 593-594.) The Court reasoned, in pertinent part, as follows: '"Not only would enforcement of the accrual provision, entered into at the inception of the breach, serve to 'postpone the tirn& from which the period oflimit~l!Qn is 1Q .b_~ 9.QH!rmt~-~1" (K~§.~ner, 46 NY2d at 551, quoting 1961 Rep of NY Law Rev Commn at 97, 98, reprinted in 1961 McKinney's Session Laws of NY at 1871 ), but it also would contravene the principle that 'New York does not apply the 'discovery' rule to statutes of limitations in contract actions' (ACE, 25 NY3d at 594), The accrual provision's set of conditions creates an imprecisely ascertainable accrual date------possibly occurring decades in the future, since some of the loans extend for 30 years-which the Court of Appeals has 'repeatedly rejected ... in favor of a bright line approach' (id. at 593-594 [internal quotation marks omitted])." (Ig,, at 20 [emphasis in original].) Here, defendants argue that, "[i]f the parties cannot extend the statute oflimitati.ons for remedying the underlying breaches of representations and warranties, even with an express 20 21 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 21] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 contractual provision that intends to do just that, the same policy rationales prohibit the Trustee from seeking to achieve the same result by different contractual means!' (Defa.' Reply Memo., at 14.) This argument is seemingly persuasive. Application oftraditional accrual precepts to the failure to notify claims recognized in N.mlH!rJ! and Mwg~n.SJ.rJDA~)',, and the resulting determination that these claims accrue upon the securitizer' s discovery of breaches and failure to provide notice, do appear to produce an outcome that is virtually indistinguishable from the outcome the Court of Appeals and Appellate Division avoided in ACE and fl<:tg~-~~g by holding that the repurchase obligation is not a separate obligation or a substantive condition precedent, and that accmal clauses are unenforceable. The principal damages sought by the Trustee reinforce the perception that the notification obligation-at least as relied upon by the Trustee here, where there are no timely claims for breaches of representations and \Varranties--is a means to extend the period in which a trustee can seek its remedy for breaches ofrepresentations and warranties. As discussed further below·, the Trustee principally seeks damages sustained as a result of the Trustee's alleged inability, due to MSAC's purported failure to comply with its notification obligations, to exercise its repurchase remedy before the passage of the statute of limitations, (Oral Arg, Tr., at 31-32; Tee.'s Suppl. Memo,, at 1-4; Tee, 's Reply Memo., at 4 [arguing that damages for failure to notify are "particularly appropriate vvhere the defendant's refusal to notify the trustee of breaching loans prevented the trustee from commencing a timely repurchase action''],) Defendants also correctly argue that application of a discovery based accmal rule to failure to notify claims raises concerns that such claims will arise "at lmcertain points in the future," on dates «subject to dispute and intertwined \1Vith disputes on the merits." (Defs,' Reply Memo., at 11.) These concerns are not inconsiderable in RMBS cases, which generally involve 21 22 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 22] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 representations and warranties pertaining to thousands of loans per securitization, any one of which might theoretically be reviewed by a defendant post-securitization, Defendants' arguments as to the public policy concerns implicated. by a discovery based accmal rule for failure to notify claims are compelling, Significantly, however, in claiming that this court should apply the same statute of limitations to both the failure to notify claims and the breach of representations and warranties claims, defendants fail to give effect to the Appellate Division's holding, which this court is bound to follow, that the duty to notify is an independent contractual obligation. Defendants also effectively invite this court to create a novel accmal rule under which the statute of limitations may begin to nm even b1.~fore the contractual notification obligation is breached. Defendants do not dispute that the PSAs expressly provide for notice to be provided upon defendant securitizer's (MSAC's) discovery of a breach ofrepresentations and warranties. Defendants do not cite, and this court is unaware, of any authority that would permit the court to ignore the contractual language and hold that the notification obligation is breached as a matter of law at the time the representations and warranties were made, rather than at the time the contract specifies that notice to the Trustee must be provided. This court thus concludes that, given the terms of the contractual provision that sets f01th the independently enforceable notification obligation recognized by the Appellate Division, there is no viable alternative to a discovery based accrual ru]e for the failure to notify claims. It must be noted that this case is not like fi~g~tru:, in which the contract provided that a claim for breach of representations and warranties that were made as of the closing d.at1.~ would not accme until a later point specified in an "accmal clause." The representations and warranties were true or false as of the dosing date and thus, under s1:.~ttled accrual principles, \.Vere breached as of that date, Here, i11 contrast, the PSAs do not delay the accrual date of the separate failure to 22 23 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 23] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 . " g1\le 11ot1ce . a.rise t.u1.til son1~~ futurt~ d.atc reached. As also noted above, application of a discovery based accrnaI rule for the failure to notify claims raises concerns about the predictability of the accrual date for the claims. It bears emphasis that these concerns, although valid, are similar to those raised as a result of the determinations of the Appellate Division and this court that, under the rernedial. provisions typical in Rlv1BS governing agreements, a trnstee may maintain claims for breaches of representations and walTanties not only \~rhere the trustee provides wTitten notice to the defendant securitizer of breaches before commencing suit, but also where the defendant independently discovers breaches. The defendant's discovery of breaches is the alternative "trigger" of the repurchase obligation discussed in GreenJ:2in.t, which allows a trustee to commence a put-back 23 24 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 24] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 action without first providing a breach notice to the defondant Thus, in put-back actions based on defondant securitizers' independent discovery of breaches, as in failure to notify actions, the trnstees' claims will be dismissed if they cannot ultimately prove that the defendants discovered breaches of representations and warranties. In both categories of actions, the viability of the trustees' claims cannot ordinarily be resolved at the pleading stage. Many put-back actions have been penn1tted to proceed in this and other Courts despite the trustees' inability to allege discovery 011 a loan-by-loan basis, based on the alleged existence of pervasive defects in the loan pools and the securitizers' due diligence. (See N~ti~j§__R~aj__ E~_tfJ:t~--~),mit~lT:r.m'it~.QQ'.7.::HE.2, 149 AD3d at 136-137, 139-140 [upholding pleading of breach of representation and warranty claims against defendant sponsor based on its discovery of breaches, where the complaint identified the representations and warranties that were breached and pleaded allegations that the sponsor perfonned due diligence on the Ioans, "that at least 60% of the loans in the Trust [were] defective, and that Natixis's due diligence 'would have revealed that Loans were plagued vvith defects"']; see also ]'IJ9m_ri,:r.~_, 133 AD3d at 4785503, * 4-6 [Sup Ct, NY County, Aug. 28, 2014, No. 651936/2014] [this court's prior decision, citing federal and state authorities and summarizing allegations of discovery that have t~Lg_myr,~ Credit & Cal)itat,Jgi;,~, 2014 \VL 2890341, * 15 [Sup Ct, NY County, June 26, 2014, No. 653390/2012] [san1e].) These cases have rt.~quired extensive CPLR art. 31 disclosure before ultimate resolution. The failure to notify claims here will also require article 31 disclosure that \Vill not differ materially from the disdo.sure in the breach of representations and wananties cases, The 24 25 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 25] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 difficulties in detem1ining the viability of the claims at the outset of the actions thus exist in both categories of cases. It also cannot be ignored that these difficulties arise because the extremely sophisticated parties to the agreements governing Rlv1BS securitizations themselves typically agreed to condition the various parties' obligations under those agreen1ents on their discovery of breaches of representations and warranties. Perhaps more important, the impact of an independently enforceabk~ notification obligation, and of a discovery based accrual rule for breach of this obligation, is not nearly so far-reaching as the Trustee contends. The court agrees that an independent cause of action for breach of the notification obligation appears to open a "backdoor" to ACE. (See H.™!k.21.N.-.:C Mellon, 53 rv1isc3d 967, 981n12 [Sup Ct, NY County, Sept 7, 2016, No. 653099/2014, Kornreich, J.j.) Contrary to the Trustee's contention, however, the Trustee will not be entitled, under the guise of a failure to notify claim, to recover for every breach of representations and V\larranties that the defendant securitizer has discovered or wili discover over the iife of the Securitizations. Rather, as discussed below, the Trustee's claim.s \:\-ill be timely if based on breaches that the defendant discovered within the six-year period immediately preceding the assertion of the failure to notify causes of action. Claims based on defendants' discovery of breaches prior to this six-year period will not be timely. As also discussed below, the damages for the timely claims will be su~ject to limitations. Thus, dan1ages equivalent to those under the repurchase remedy (repurchase damages) will not be available even for timely brought failure to noti(y claims, unless they are based on breaches discovered during the six-year period following the date of the c.Iosing, while the repurchase remedy remained available to the Trustee. The record on these motions is not sufficiently developed as to whether damages other than repurchase damages may he available for these failure to notify claims. If repurchase damages 25 26 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 26] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 are not recoverable, however, the claims may be maintained at least for nominal damages. c. ci«~IM§,~A~J;~!I.Q£:LPt~~-QYWsX.9F BREAGHJ'.'._§__M.oRg_.r~:ihJ~t~Ix Yr;_AR§J~.t:JQ~_.ru~ 1.\§~J-;;RIJQJ~LQf THE FAILlJJ~JLI.Q.~QJJD'...Cl~YS~~--QfJ\~IIQN...... TUJ~..Cm~:UNlHNQ QI!.~JQ~IIQ!i.P.OCIBJN~;; The court rejects the Trustee's contention that, pursuant to the "continuing obligation doctrine," its claims are tirnely even to the extent that they are based on MSAC's discovery of breaches before the closing dates of the Securitizations and therefore more than six years before the assertion of the failure to notify causes of action. The Trustee argues that '"[r]egardless of when Morgan Stanley initi.§,lh: breached [the duty to notify], it ~.Q.PJirm~_g to breach that duty by failing to provide notice at any time thereafter." (Tee.'s Opening Memo., at 20 [emphasis in original].) The Trustee contends that, "[u]nder the continuing obligation doctrine, [it] may assert claims for those persistent failures to notify, regardless of 1.vhen Morgan Stanley initially discovered the breaches!' (kt, at 2L) Acceptance of this theory would eviscerate the statute of limitations for failure to notify claims, A trustee could bring a claim thirty years in the future on the ground that a securitizer, decades earlier, discovered breaches of representations and wammties and failed to provide notice, thereby causing or contributing to the trustee's failure to commence a put-back action within the statute of limitations period. In arguing for this untenable result, the Tmstee misconstrues the continuing obligation doctrine, That doctrine "will save all claims fr.1r recovery of damages but only to the extent of V.-Tongs committed within the applicable statute of limitations." (J:Ien.tj'..J'...~~--Qf.Am_,_, 147 AD3d 599, 60 l [1st Dept 2017],) "The doctrine may only be predicated on continuing unlawful acts and not on the continuing effects of earlier unlawful conduct The distinction is bet\¥een a single wrong that has continuing effects and a series of independent, distinct wrongs." (1d. [internal quotation marks and citations omitted].) 26 27 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 27] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 Put another way, "[i]f, , . a contract requires continuing performance over a period of time, each successive breach may begin the statute of limitations running anew·," (Q11UJ2~rty_Q~IW~!\ 480 F3d 140, 150 [2d Cir 2007] [applying New York law].) As the Court of Appeals has explained, where a contract provides for a continuing obligation, the statute of limitations "run[s] separately for the damages occasioned each timt~ a breach of the obligation, .. occur[s]." (Bulova, 46 NY2d at 611.) The doctrine does not revive the statute oflimitations for any breach of the continuing obligation that occuned more than six years before the action was commenced. Claims for breaches of the obligation \Vill therefore only be timely if the breaches occurred \ivithin the six years immediately preceding such commencement (Id., at 612.) Here, the obligation ofMSAC to give "prompt written notice" upon its discovery of a breach ofrepresentations and warranties continued after the closings of the Securitizations and was a continuing obligation under the governing agreements. (See PSAs, quoted supra, at 6-7 n 8.) On the above authority, the Tmstee's clahn for a breach of the notification obligation vvill be timely only ifMSAC's discovery occun-ed within the six-year period before the assertion of the failure to notify causes of action. The court accordingly turns to the issue of whether the Tmstee"s amended complaint in flif A_(N~~-n and the proposed amended complaint in fi:ffA..(N~~;?.) plead timely claims. Defendants in effect contend that the pleadings do not allege facts shovving that JVJSAC discovered material breaches of representations and wananties within the six-year period preceding the assertion of the failure to notify causes of action. Rather, according to defendants, the pleadings do not state timely faih.ffe to notify claims because they allege only that MSAC 28 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 28] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 was aware of pervasive defects in the loan pool as a result of its due diligence prior to the closing dates------1nore than six years before the complaints were filed. (Def's.' Opening Memo., at 3-4.) 13 The Trustee argues in opposition that its pleadings allege "specific facts indicating that at least some of the breaches were discovered only after the securitization[s] closed." (Tee.'s Opening Memo,, at 5.) In FHFA (NCU, the amended complaint pleads that "MSAC or its affiliates were responsible for selecting the loans to be securitized, and had access to information about the loan undenwiting process as a result of due diligence and repeated dealings -with NC Capital, from which the Mortgage Loans were acquired" (NCI Am. CompL, ii 61); that "it is customary in the industry for the sponsor of an RMBS securitization [here, MSj'VIC] or its affiliates to conduct due diligence on the mortgage loans it selects, either through its own staff or through a third party"; and that "[o]n information and belief, MSAC or its affiliates conducted such due diligence here, acquiring further detailed information about the characteristics of the Mortgage Loans and the undenvriting process." (Id,,~ 62.) The amended complaint also alleges that MSAC acquired knowledge of breaches of representations and warranties from the complaint in a federal securities fraud action filed in 2011 by FHFA against Morgan Stanley. (NCI Am, CompL, ii 65.) The types of alleged breaches of representations and wananties are identified in the amended complaint, and include representations about bo!Tower income, debt-to-income ratios, and borrower employment status. (Id.,~~ 44-48,) In addition, the amended complaint pleads that "[t]he breaches of representations and \Varranties [were] so pervasive throughout the loan pool, 13 The court notes that defondants challenge the complaints on the ground that all of the failure to notify claims accrued, at the latest, at the time ofthe closing date and were therefore untimely. They do not challenge the proposed amended complaint in FHFA (NC3) on the ground that MSAC was not a party to the original complaint, and do not claim that the failure to notify claims in the proposed amended complaint do not relate back to the original complaint. 28 29 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 29] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 and their nature [wa]s so severe and unmistakable, that they should have been apparent to any party with MSAC' s level of involvement and knowledge." (Id., 41 64.) The proposed amended complaint in FHFA (NC3), first filed in connection with these motions, pleads similar allegations regarding the existence of pervasive breaches of identified representations and warranties, including those n.~garding loan-to-value ratios, owner occupancy, and mortgage delinquencies. (NC3 Proposed Am. Cmnpl., ~ii 39-4CL) This complaint, like the FHFA (NC1) amended complaint, pleads that it is "customary in the industry for the sponsor of an RMBS securitization to conduct due diligence on the inortgage loans it selects, either through its own staff or through a third party" (id., ~ 18), and that MSAC acquired knowledge of breaches as a result of the due diligt.~nce. (Id., 1f 79.) Unlike the FHFA (N,Cl} complaint, the FHF A (NC3) complaint specifies when due diligence occurs, pleading that, "[c]ustomarily, those reviews occur both prior to and after securitization, in connection with, among other things, monitoring of mortgage loan performance, repurchase requests made to originators, and repurchase requests rect.frved from parties to the securitization." (NC3 Proposed Am. Compl., ~ 18,) The FHFA (NC3) complaint also pleads that MSAC, as Depositor and affiliate ofMSMC, the Sponsor, had "extensive knowledge" of the due diligence results. (See id., ~4112, 19.) As held above, under the terms of the PSAs, the notification obligation is a continuing obligation that survives the closing date, In imposing the continuing obligation on 1'1SAC, the PSAs reflect the parties' expectation that MSAC might be in a position after the dosing to discover breaches of representations and \vam.mties. Given that the representations and warranties did not become effective until the moment of closing, a notification obligation that was limited to MSAC's knmviedge of breaches at the time of closing would be oflittle utility to the Trustee or other parties, Moreover, neitht.~r complaint pleads, nor supports the inforence, that 29 30 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 30] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 MSAC discovered all of the breaches of representations and warranties prior to the closing date, 14 The court concludes that, under New York's liberal pleading standards (see CPLR 3013), the amended complaint in FHFA. (NC~D pleads a timely failure to notify cause of action. The question of whether MSAC discovered breaches ofrepresentations and warranties postsecuritization is likely a matter peculiarly within MSAC's knovdedge, and is not properly determined on a rnotion to dismiss. The amended complaint alleges the pervasiveness of defects in the loan pools, defendants' performance of due diligence, and their consequent klxnvledge of breaches of representations and warranties. Although the complaint pleads that "many" breaches 14 A critical isstie, which is not addressed on these motions and remains to be decided in the RMBS litigation, is whether a defendant securitizer will be found to have "discovered" breaches of representations and warranties only when the defendant acquires actual knowledge of specific breaches or when the defendant should, vvith reasonable diligence, have discovered such breaches-Le., when the defendant was put on inquiry notice of breaches. In a recent case brmight by plaintiff holders of Rlv!BS certificates against a trnstee, the plaintiffa alleged that the trnstee had violated the PSA by failing to give \Witten notice of certain breaches of representations and wananties upon the trnstee's own discovery of such breaches. The Appellate Division denied a motion to dismiss this claim, holding that "plaintiffs were not required to allege that defendant had actual knowledge of a loarH>pecific breach." (fi?;gg MW:Rill!<..S.l;mrn,<J_:__ ~i~ri~-~-Jx'LYJ~JJiR.lfills,J:Lt'\,, 157 AD3d 541 [1st Dept 2018].} In support of this holding, the Court reasoned that the PSA provision which imposed the notification obligation on the trnstee used ihe word "discovery," whereas the term "actual knowledge" was used in a separate provision of the PSA that imposed other duties on the trnstee. In the instant cases, defendants have not discussed the various contractual provisions imposing duties on the parties upon discovery or actual knowledge. Defendants do not argue that an inquiry notice standard applies to the failure to notify claims, and the Trustee does not argue that an actual notice standard applies. Determination of the discovery standard may be necessary tipon the resolution of these cases, as the complaints arguably raise an inference that de.fondants were put cm inquiry notice of extensive breaches very early in the securitization processpossibly more than six years before the complaints were filed. The Comts' ultimate determination as to when a party will be found to have discovered breaches could also have a significant impact on the viability and proof of the various claims asseited in the &\1BS litigation generally. In determining the appropriate standard for "discovery," Courts will be called upon to consider not just the use of terms alternative to "discovery" elsewhere in the governing agreements, but also the substance of provisions setting forth the interrelated obligations ofthe parties. These include provisions imposing notification obligations upon various parties and provisions limiting the time period afforded a party after discovery of breaches (generally 60-90 days) to cure such breaches, or to substitute or repurchase affected loans. Courts will also be called upon to consider how these remedial obligations can be practically complied with if"discovery" is held to occur before the party gains actual knowledge of a specific breach. lt is noteworthy that, under RMBS governing agreements, both trustees and securitizers genera.Hy have obligations upon discovery of breaches of representations and waiTanties, and so may be harmed or benefited by application of an actual knowledge or inquiry notice standard, depending on which party's obligation is at issue in a particular case. mu 30 31 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 31] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 were apparent at the time of the securitization (NCl Arn. CompL, if 64), it does not piead facts from which it can be inferred that MSAC did not subsequently discover any breaches. Considering the purpose of the notification obligation, and giving the Trustee the benefit of all favorable inferences, as the court must do on a motion to dismiss (see 511,\V.__JJ,£µd Own,©rn kQKL\,V Jennli.~rJlealty C~2,, 98 NY2d 144, 152 [2002]), the court holds that the allegations of the amended complaint support the inference that MSAC discovered breaches of representations and warranties not only at or before the securitization closed, but also within the six-year period prior to the assertion of the failure to notify claims. It is noted, moreover, that it is defondants' initial burden on a motion to dismiss to make a prima facie shmving that the complaint is barred by the statute of limitations. (See ~1@J'.~!nik, J:,ebed~y v 144 AD3d 24, 28 [1st Dept 2016].) Yet, defendants do not deny that MSMC perfom1ed both pre- and post-securitization due diligence and that the results were shared between MSMC and MSAC as affiliates. Nor do they otherwise make any shovving that l\!lSAC discovered all breaches of representations and warranties as of the dosing date, The court similarly holds that the FHFA (NC3! proposed an1em.1ed complaint pleads a timely failure to notify cause of action. A motion for leave to amend should be granted unless the proposed amended complaint is palpably insufficient or plainly lacking in merit. (See~ ));:U1Il\Jn§,, CQUI:__X Gi:~xstone ~ Co,,Jm~,,, 74 AD3d 499, 500 [1st Dept 201 O]; Milt~LY__[Qb~n, 93 AD3d 424, 425 [1st Dept 2012].) The proposed amended complaint alleges pervasive breaches in the loan pools and the customary perfonnance in the industry of both pre- and postsecuritization due diligence, resulting in MSAC's knowledge of breaches of representations and warranties, As stated above, MSAC's discovery of breaches is likely a matter peculiarly within MSAC's knowledge. The ovenvhelrning weight of authority thus holds that, at the pleading 31 32 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 32] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 stage loan-level breaches are not required to be identified in order to state a claim, where R1\1BS claims are based on a defendant's discovery. (See cases cited supra, at 24.) Under these circumstances, th~~ court rejects defendants' contention that any further showing of the merit or timeliness of the proposed failure to notify claim is required, 15 As discussed above, the Trustee represents on these motions that the principal damages it seeks on the failure to notify causes of action are damages for its alleged inability to exercise its repurchase remedy, as a result of defendant MSAC's breach of its obligation to notify the Trustee ofMSAC's discovery of breaches of representations and warranties. Under the typical R~lrBS governing agreement, the repurchase remedy is the sole remedy for a cause of action brought by a trustee for breaches of representations and warranties. As a failure to notify claim cannot be permitted to serve as a means to avoid or extend the statute oflimitations on a breach of representations and \Varranties cause of action, a question arises as to whether the repurchase damages that the Trustee seeks are also recoverable on a failure to notify cause of action. The court accordingly considers whether the complaints plead facts which support an inference that repurchase damages were proximately caused by IVfSAC's failure to notify, 16 In order to prove a breach of contract cause of action, the plaintiff must prove that a i 5 S_~!< Aml:I~!;__A_~_~_w:,_('.Qfl{,_YNQID!Jrn__ 1:):!<4it~ __Cm;iix~LJ.rn;:,, 2016 WL 747 5331, * 3 n 4 (Sup Ct, NY County, Dec. 29, 2016, No. 651359/2013) (this court's prior decision surveying cont1icting appellate authorities on the showing of merit required on a motion for leave to amend), 16 Cognizant of the fact that these bellwether motions were briefed to resolve common issues in the Rl\IBS litigation, and considering the importance of this issue, the court requested supplemental briefing on whether the complaint adequately alleges facts from which damages due to defendant's failure to notify may properly be inferred. {Oral Arg, Tr. at 39.) 32 33 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 33] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 Dept 1998] ,) "The damages for which a party may recover for a breach of contract are such as ordinarily and naturally flow from the non-performance."' (frnitio~Lim~,,_, 1 AD3d at 125, quoting Bg_QJILY..Stmxt~nJ)uyvil Rollim~Jyii!LC.Q:, 60 NY 487, 492 [1875],) "Jn the law of contracts, as in torts, causation in fact is established if the defendant's breach of duty was a Capital Corp., 10 F Supp 2d 345, 366 [SD NY 1998] [applying New York law] [internal quotation marks and citations omitted], affd for .~llt~§J~mti~Ux the rn11.~~m£ :?..t@t~Jl 182 F3d 163 [1999]; 28A NY Prac.~ Contract Law,§ 22:7 [sarne].) This "test is satisfied ifthe defondanfs actions would be thought of by people generally as having operated to an important extent in producing the harmful result" (Coastal, 10 F Supp 2d at 366 [internal quotation marks and citation omitted].) It is not necessary that the breaches be "the exclusive i:.:ause" or the "sole cause" of the damages. (Id. [internal quotation marks and citation omitted, emphasis in original].) Damages must nevertheless "be reasonably certain and directly traceable to the breach, not rernote or the result of other intervening causes." (K~11lQI~LCJ!_:_,Jgg,__y_C.QJl11tY_gJ Erie, 67 NY2d 257, 261 [1986].) "To break the legal chain, the intervening act must have been of such an extraordinary nature or so attenuated from the defendants' conduct that responsibility for the injury should not reasonably be attributed to them." (tL~\fJ:IQJQjXJ_g.~"1JA="YLL&J"uxrn: [Trading} Lt4,_, 2016 WL 3098842, * 6 [SD NY, June 1, 2016, No, 10 Civ 5762] [applying New York law] [internal quotation marks and citations omitted].) At the pleading stage, however, it is not necessa.ry for the plaintiff to plead the precise measure of damages, The complaint need only allege facts from which damages may reasonably 34 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 34] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 Dept 2015]; ~AEJndt.1:s.,__ Lt~l,__ y_K_.P.M.G ..P.~11tM.fil:J:Yi~_k, 193 AD2d 4 70, 472-4 73 [1st Dept 1993]; 36 NY Jur 2d Damages § 207,) The Trustee contends that, "[i]f a sponsor, depositor, originator~ or servicer discovers a breach at some point within the first six years of the securitization, but fails to provide prompt notice to the Trustee so that the Trustee can make a timely repurchase demand, the Trustee's lost repurchase remedy is a direct result of the failure to notify." (Tee. 's Suppl. Memo., at 2.) The Trustee further argues that '"not only is an inability to make a timely repurchase demand a natural and probable consequence of a failure to notify --- it is one of the precise forms of injury the duty to notify is designed to prevent" (Id.) Defondants dispute that MSAC's failure to notify· the Trustee of defective loans was a proximate cause of the Tmstee's failure to file a timely action for breach of representations and wan·anties. They argue that "any purported damages resulting from the Trustee's failure to file timely suit were proximately c.aused by the Trustee's failure to sue \Vhen FHFA attempted to do so on its beha!f-----and to instead sue at FHFA's direction six months later ... ," after the statute oflimitations for the breach of representations and warranties claim had passed. (Defa' Suppl. Memo., at 2.) According to defendants, this failure to file suit was "the intervening cause." (Id., at 4.) It is apparent from the plain terms of the PSAs that the duty to notify serves primarily to facilitate the Trustee's pursuit of the repurchase remedy for breaches of representations and \VaITanties. The function of the notification obligation as a facilitator of the repurchase remedy is appru·ent from the inclusion of the obligation in the same sections of the PSAs as those which set forth or provide for enforcement of that rernedy. (See PSA provisions, quoted ~JJ.11rn at 6-7, n 7- 8.) Moreover, as is customary in RMBS governing documents, both PSAs here impose certain limits on the Trustee's investigative duties, particularly before the occurrence of a contractually34 35 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 35] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 J') T'J-1e court rnake.s no findings as to the ~cope of a trust{:{~~ s duty to in'V{~stigate------an ~ssue that ts th:-:: subject of exiin1si~./{: Htig;:~tion~ brougbt hy certificat(:holder~} ;:tga~nst l~I'lf}3S ·~r:ru~~t-ees:- in both this and otbcr (~<:urtR. (~~~f: .~~..J~. ~~fl.HJXn.~rs~~~.I~~gi.k v .B~~r!!§~J"--:.;[J:L.~'{:_ _ fs-~l~~-U5~-~J.~ 141 i\J)3d 413 [~st I)ept 20 ~ 6.J.:; IKJc-1_J11;l~.. S.~£\~ ..Y.J!.;~~al l~~ t3ankJ':{.:l1.:.~ Snp (~t, N·,y c:ounty~ Index ~N·o~ 654436/20} 5 and related cases pending in thLs Part; ghQ.~nJ~.J~J~)Jt.~F L±~l~~Y~J:~~~~.!~~?h~~ Xi%!11~..~~Jl~L.])J3St (~o~~ ~ 72 .F supp 3d 700 [SI) 1~):" 20 J 61; ~~~G\!~l~l~g~r!:;~J~gx~~--S_.{\/t{~·~.J(-~li~Hh;J~f N:~Y~~~~~~i~.nstn~ 20) 6 \?:/I. 899320 [SJ) NSt, J\·1a.r. 2~ 20 l 6.~ No . 1: 14·~cv~·6502~ \\foods) J,],) 35 36 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 36] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 In upholding the pleading of the complaints as to repurchase damages, the court does not suggest that the Trustee's claims for these damages will ultimately be successfuL A legitimate question is raised as to whether, and to what extent, the Trustee and the certificateholders are themselves responsible for their failure to commence timely put-back litigation. It is undisputed that the repurchase remedy was available to the Trustee for six years following the closing dates of the Securitizations. In each case, this six-year period passed years after the financiaI crisis of 2008 and the publication of numerous reports of widespread misconduct in the securitization of residential mortgages. Many trusts were able to bring timely claims for breach of representations and warranties against securitizers, notwithstanding those securitizers' alleged failure to notify the trustees of defective loans. As defendants point out, even in the instant cases, a certificateholder of the Trusts, acting through FHFA, did initiate timely repurchase litigation against these defendants, although it lacked standing to do so. (See FHFA [NCl], 2016 \VL 1587345, at* 3 [holding that FHFA's summons '\.>v'ith notice on behalf of Freddie Mac was timely, albeit defoctive]; see also J,,!.. S.J~1ml~ )'.'{f,l.tL Assn. v DLJ MtK~-'--~~Pit?:LJri.c._,_, 141AD3d431, 432-433 [1st Dept 2016], Iv granted 29 NY3d 910 [2017].) Notably, the governing documents in Ri.\t1BS securitizations ordinarily contain provisions that enable the certificatehokkrs-the ultimate beneficiaries of put-back litigation-to direct the Trnstees to investigate facts or to commence litigation against securitizers, and/or to commence such litigation thernselves on behalf of their trusts, upon compliance with specified conditions. (NCl PSA, §§ 8.02 [d], [i], 10.08.) In considering Rlv'.IBS fraud claims brought by certificateholders, this court has repeatedly held that as early as 2009, four years before the limitations periods lapsed in these actions, certificateholders were put on inquiry notice as to alleged fraudulent misrepresentations 36 37 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 37] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 regarding the quality and characteristics of the mortgage loans underlying their securitizations. These decisions cited extensive publicly available evidence, including media reports, a 2011 report of the Financial Crisis Inquiry Commission, widespread filing of lawsuits asserting similar claims against various securitizers and major originators, and downgrades of the certificates. (See~ Commerzban~_AQJ~~2wi_gnJlr~n9.hXJLl3S AG, 2015 \VL 3857321, * 2 [Sup Ct, NY County, June 17, 2015, No. 654464/2013]; IKBJg!tJ~'-'~-~ _ __ MQig~n51~n1~x, 2014 vVL 5471650, _y * 4 [Sup Ct, NY Cmmty, Oct. 28, 2014, No. 653964/2012], ~ffd on other f'.LQ1filg_§ 142 AD3d 447 [Sup Ct, NY County, Mar. 3, 2014, No. 652678/2011] [coilecting authorities].) 18 A serious issue thus exists as to whether the Trustee's ovvn inaction, the ce1tificateholder's failure to properly commence these actions, or the certificateholder's failure, if any, to direct the Trnstee to commence the actions within the statute of limitations, \Vere contributing or even intervening causes of the Trustee's drunages. The court, however, makes no findings in this regard, as causation must ultimately be determined by the fact finder upon a fully 12 This court 11as also previously rejected arguments by trustees in put-back actions that defendant securitizers and originators were equitably estopped from asserting the statute of limitations due to the defendants' breach of their duties to notify the trustees upon their discovery of breaches. The court reasoned that the trustees failed to plead facts supporting their assertion that the defendants' failure to notify led the trustees to believe that there were no defective loans or prevented them from bringing suit within the limitations period. (See~ PmJ1~.9.h~..J2Jg1)sJ:-fg!L Ir.m1tQQ,..Y.J:l~&~!§t('.J!dt~LM1l'hJ~QJ:l2~" 2015 \VL 1646683, * 3~4 [Sup Ct, NY County, Apr. 13, 2015, No. 653048/2013] [this court's prior decision, citing additional authorities], affd on other grmmgJ? 143 AD3d 15, supra; kl.i!nK..Qf:\':LX,__M~UQn.Yj~{~1.Q.Mti:ls\,__LLC, 53 Mlsc3d 967, 971-973 [Sup Ct, NY County, Sept. 7, 2016, No. 653099/2014, Kornreich, J.J [rejecting equitable estoppel argument where the defendant was "not alleged to have hidden anything or prevented fthe trustee] from discovering breaches"]; see also W~U~J<¥.,gQ..~.&lk.N...t~.,_Y JP.M9J~rnn.G.bi!.~_¥__l'{an):::.,,J:L.A." 2014 WL 1259630, * 5 [SD N'Y, Mar. 27, 2014, No. 12 Civ 6168, Cedarbaum, J.1, J!ff°J! on other grounds 643 Fed Appx 44 [2d Cir, Mar. 16, 2016],) These equitable estoppel cases are not detem1inative of the proximate causation issue in the instant actions. The doctrine of equitable estoppel is an extraordinary remedy that is applicable only where the plaintiff "was induced by fraud, misrepresentations, or deception to refrain from filing a timely action." (RQ.~-~..YJ<!.Q.!Jj,5_~jyjg; S.2r"1'$_,,JJ::g;,. 8 NY3d 478, 491 [20071 [internal quotation marks and citation omitted}; Fla.gstar, 2015 \v'L 1646683, at* 3,) The standard of prevention for purposes of the equitable estoppel doctrine is more rigorous than the causation standard, under which there may be multiple causes of damages, so long as a party's conduct \"/as a substantial factor in causing the damages. 37 38 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 38] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 developed record, G~AF Holding~L_l~L.C, 2016 WL 3098842, at* 6 ["In contract as in tort cases, questions of proximate cause, including intervening cause, should generally be resolved by the factfinder" (internal quotation marks and citations omitted)].) As the court holds that the Trustee may maintain claims for repurchase damages subject to the limitations set forth in this decision, the court does not. address the viability of the measures of damages, other than repurchase damages, proposed by the Trustee. The court notes, however, that the Trustee does not adequately explain its claim that MSAC's failure to notify impaired the servicers' ability to address loan defects, (See Tee.'s Suppl. Memo,, at. 4.) In addition, the Trustee's claim that rescissory or consequential damages "may be appropriate" (id., at 6) is not developed on this record and, although questionable, therefore cannot be appropriately addressed. Finally, vvhet.her or not the Trustee is entitled to repurchase damages or other damages, the Trustee :may maintain its failure to notify claims for nominal damages, as "[n]ominal damages are always available in breach of contract actions." CKJQIW§.,Jrw,,Y AV.X Corp,, 81NY2d90, 95 [1993]; see also C_m1nfilt'1ht9n v__(]1i1mJJ§J~,1_~~i<;.~n.Q:riJLJpc., 29 NY3d 137, 143 [2017]; _8,Q;'J_~--'~CS_h~rwa.tt, 95 AD3d 1100, 1100 [2d Dept. 2012] [holding that trial court "properly awarded the plaintiffs only nominal damages on their cause of action alleging breach of contract," where "plainti:ffa failed to submit. sufficient evidence to demonstrate actual damages ."].) In light of this holding that the amended complaint in EHFA (NC1) and the proposed amended complaint in FHFA (NC3) adequately plead facts from which damages can be inferred, the court need not consider the proposed amended complaints submitted with the Trustee's supplemental paper~ on these motions, CO:NCLD_SIQ.N 38 39 of 40 [*FILED: NEW YORK COUNTY CLERK 03/07/2018 02:10 PM 39] NYSCEF DOC. NO. 176 INDEX NO. 650291/2013 RECEIVED NYSCEF: 03/07/2018 For all of the above reasons, the court holds that the amended complaint in FHFA (NCl), and the proposed amended complaint in FHFA {NC3) state timely failure to notify ciaims against defendant MSAC. It is accordingly hereby ORDERED that the renewed motion of defendant l\/forgan Stanley ABS Capital I Inc, in (FHFA [NCI]) to dismiss the second cause of action (fru "Breach of Contract-Failure to Notify") is denied; and it is further ORDERED that the motion of Deutsche Bank National Trust Company (the Trustee) to lfokU1:w~.. L.L.C (Index No. 651959/2013) (FHFA [NC3]) is granted to the extent that the Trustee is granted leave to serve and file the proposed amern:k~d complaint attached as exhibit 5 to the Weinstein Affidavit in Support of defondants' motion. Provided that: To the extent that the amended complaint repleads causes of action dismissed by this court's decision dated April 12, 2016, those causes of action are deemed dismissed; and it is further ORDERED that the proposed amended complaint in FHFA (NC3) shall be deemed served upon service of a copy of this order with notice of entry, This constitutes the decision and order of the court. Dated: New York, New York March 6, 2018 39 40 of 40
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