• Supreme Court, New York County, Commercial Division Part 49
  • 653541/2011
  • Justice O. Peter Sherwood


Cite as: Nomura Asset Acceptance Corp. v. Nomura Credit & Capital, 653541/2011, NYLJ 1202604071680, at *1 (Sup., NY, Decided May 10, 2013)


Justice O. Peter Sherwood

Decided: May 10, 2013





This is one of several residential mortgage-backed securities ("RMBS") "putback" litigations pending in this court.1 Defendant, Nomura Credit & Capital, Inc. ("Nomura" or "NCCI") moves, pursuant to CPLR 3211(a)(1), (5) and (7), to dismiss the amended complaint. As this is a motion to dismiss, the allegations are derived from the amended complaint and are assumed to be true.


The amended complaint alleges breach of contract arising out of Nomura's failure to repurchase allegedly defective loans from a pool of home mortgage loans that Nomura sold to Nomura Asset Acceptance Corporation Alternative Loan Trust, Series 2005-S4 (the "Trust") in connection with the securitization of the loans through the issuance of more than $259 million in RMBS certificates. Each of the three causes of action alleges breach of contract based on the same facts but differ as to the remedies being sought.

Nomura served as the Seller (commonly known as the Sponsor) for the Trust. Nomura purchased 4,890 mortgage loans after they were originated and then re-sold them with an aggregate principal balance of $275,145,795 to its affiliate, Nomura Asset Acceptance Corporation ("NAAC" or the "Depositor"), pursuant to a Mortgage Loan Purchase Agreement,




dated as of December 1, 2005 (the "MLPA"). The certificates were issued by the Trust pursuant to a Pooling and Servicing Agreement, also dated as of December 1, 2005 (the "PSA").

Pursuant to the PSA, NAAC conveyed the loans to the Trust, which issued the certificates and delivered them to the Depositor for sale to investors (referred to as certificate holders). HSBC Bank USA, National Association ("HSBC"), as Trustee ("Trustee" or "Plaintiff"), executed the PSA with: (i) NAAC as Depositor, (ii) Nomura as Seller, (iii) Wells Fargo Bank N.A. as Master Servicer, Securities Administrator and Custodian, and (iv) GMAC Mortgage Corporation as Servicer. The Trust held the loans pursuant to the PSA and issued the certificates, which were backed by the mortgages. Investors purchased the certificates, through which they obtained an ownership interest in the assets of the Trust, including the mortgages. The closing date of the securitization as provided by the PSA was December 21, 2005.

In Section 8 of the MLPA, Nomura made thirty-nine (39) representations and warranties ("Mortgage Representations") of which the Trustee claims the following were breached:

Accuracy of Information (MLPA 8(i)): "Information provided to the Rating Agencies, including loan level detail, is true and correct"

No fraud in origination or servicing (MLPA 8(ii)): "No fraud has taken place on the part of the Mortgagor or any other party involved in the origination of the Mortgage Loan"

Compliance with law (MLPA 8(vii)): "Any and all requirements of any federal, state or local law including, without limitation, usury, truth in lending, real estate settlement procedures, consumer credit protection, equal credit opportunity, fair housing, predatory, abusive lending or disclosure laws applicable to the origination and servicing of the Mortgage Loans have been complied with in all material respects"

Qualified appraisal (MLPA 8(xxvii)): "The Mortgage File contains an appraisal of the related Mortgaged Property which satisfied the standards of Fannie Mae and Freddie Mac and was made and signed, prior to the approval of the Mortgage Loan application, by a qualified appraiser, duly appointed by the Seller, who had no interest, direct or indirect in the Mortgaged Property or in any loan made on the security thereof, whose compensation is not affected by the approval or disapproval of the Mortgage Loan and who met the minimum qualifications of Fannie Mae and Freddie Mac. Each appraisal of the Mortgage Loan was made in accordance with the relevant provisions of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989"

Maximum Combined loan-to-value ratio (MLPA 8(xxxix)2): "No Mortgage




Loan had a combined loan-to-value ratio in excess of 100 percent"

No knowledge of adverse conditions (MLPA 8(xxxvi)): "No Mortgage Loan was selected from the mortgage loans in the Seller's portfolio in a manner so as to affect adversely the interests of the Purchaser"

Compliance with underwriting guidelines (MLPA 8(xxxvii)): "The Mortgage Loan was originated by or acquired (and if acquired by, was originated pursuant to the underwriting guidelines of) by the Seller or by a savings and loan association, a savings bank, a commercial bank or similar banking institution which is supervised and examined by a federal or state authority, or by a mortgagee approved as such by the Secretary of HUD"

No high-cost loans (MLPA 8(xxxviii)): "No loan is a high cost loan or a covered loan, as applicable (as such terms are defined in Standard & Poor's LEVELS Version 5.6 Glossary Revised, Appendix E)…."

Plaintiff also alleges breach of certain provisions of the PSA, specifically, PSA Section 2.03(b)(vii), which provides that "[t]he representations and warranties set forth in Section 8 of the [MLPA] are true and correct as of the Closing Date." PSA Section 2.03(b) also sets forth additional Mortgage Representations made by Nomura, such as Section 2.03(b)(ix) which provides that "[n]o loan is a High Cost Loan or Covered Loan, as applicable…."

The remedy for breaches of the Mortgage Representations is set forth in Section 9(c) of the MLPA and Section 2.03(c) of the PSA. The section provides that, "within 90 days of the discovery of a breach of any representation or warranty that materially and adversely affects the interests of the Certificateholders in any Mortgage Loan, [Nomura] shall cure such breach in all material respects, and, if such breach is not so cured, shall…repurchase the affected Mortgage Loan or Mortgage Loans from the Trustee at the Purchase Price…." The section also provides that, "if it is discovered by any of the Depositor, the Seller, the Securities Administrator or the Trustee that the substance of such representation and warranty is inaccurate and such inaccuracy materially and adversely affects the value of the related Mortgage Loan, notwithstanding the Seller's lack of knowledge with respect to the substance of such representation or warranty, the Seller shall nevertheless be required to cure, substitute for or repurchase the affected Mortgage Loan…." Pursuant to Section 2.03(c), the Seller's "obligation…to cure, purchase or replace any Mortgage Loan as to which a breach has occurred…shall constitute the sole remedies




against the Seller…." Under PSA Section 2.01, enforcement authority is vested in the Trustee.

In addition to the repurchase obligation, Section 7(v) of the MLPA contains a "No Untrue Statement Covenant," which states that the MLPA "does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements contained herein not misleading," and that "the written statements, reports and other documents prepared and furnished or to be prepared and furnished by the Seller pursuant to this Agreement or in connection with the transactions contemplated hereby taken in the aggregate do not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements contained therein not misleading." The No Untrue Statement Covenant is set forth in a section of the MLPA that is separate from the Mortgage Representations. Plaintiff argues that these obligations are not subject to the remedy restrictions in §9 of the MLPA or §2.03 of the PSA.

Certificate holders who have over 36 percent of the voting rights of the Trust conducted an investigation into the loans. The investigation revealed that many of the loans placed in the Trust do not conform with one or more of the Mortgage Representations and therefore are in breach of the MLPA and PSA.

As described above, the MLPA contains a representation that "[no Mortgage Loan had a combined loan-to-value [("CLTV")] ratio in excess of 100 percent." The investigators employed trustee remittance reports and Automated Valuation Models ("AVM") to assess the values of properties underlying the loans. Plaintiff states that a CLTV that is reported as lower than its true value materially and adversely affects the value of the loan and therefore the interests of the Trust and of the certificate holders. The investigation revealed that the values of many of the properties that secured the mortgage loans were inaccurately reported. For many of the loans, the value determined by the AVM was significantly lower than the reported value of the property. Therefore, the actual CLTV was higher than the reported CLTV because the denominator used to calculate the reported CLTV was overstated. Plaintiff alleges that 276 of the loans reviewed so far had actual CLTV ratios higher than 100 percent, in violation of the representation in MLPA Section 8 (xxix).

Plaintiff also contends that in breach of MLPA §8(i), credit rating agencies were given untrue and incorrect information, causing the agencies to assign improper ratings to the different tranches of the RMBS offerings. The investigation revealed significant deviations from the metrics Nomura provided to the agencies with respect to LTV, CLTV and the owner-occupancy




status of the mortgage loans. Specifically, the investigation revealed 67 loans as to which owner-occupancy status was inaccurately represented.

As to the alleged breach of MLPA Section 8(xxvii), Plaintiff contends that the appraisals of the underlying properties were not independent and did not conform to MLPA requirements. In support of this claim, Plaintiff cites public reports and governmental investigations of appraisal fraud and the results of the certificate holders' investigation. The AVM reveal that there were discrepancies between the actual value of the properties and the appraised values, with the vast majority of the discrepancies arising from over-reporting of the appraised value. The investigators found that the appraised value of 162 properties were at least 10 percent or more of the true market value as determined by the AVM. From this result Plaintiff argues that there is strong reason to believe that the appraisals did not conform to federal guidelines and were biased because the appraisers were not independent as represented in MLPA §8(xxvii).

As to the alleged breach of MLPA §8(xxxvii) (underwriting guidelines), Plaintiff argues that Nomura represented that the loans conformed to its own underwriting guidelines, no matter what entity originated the loans, as well as to federal or state professional appraisal standards. The appraisal standards in the Uniform Standards of Professional Appraisal Practice ("USPAP") require that appraisals be independent, unbiased, and not contingent on a predetermined result. Plaintiff maintains that a false representation that a loan was secured by a property appraised by an independent appraiser, materially and adversely affects the interest of both the Trust and the certificate holders in that mortgage loan. The certificate holders' investigation analyzed CLTV ratios of sampled loans to determine whether the appraised values of the loans were made in accordance with established industry practice. Plaintiff claims that a CLTV deviation of 5 percent constitutes a material deviation that warrants the conclusion that serious errors occurred in the appraisal process in violation of USPAP standards. The investigation uncovered that the actual CLTV for 198 loans were at least 5 percent greater than that represented on the Closing Date.

Plaintiff also claims that an inspection of the mortgage loan files revealed additional breaches. A comprehensive forensic investigation of those files has been commenced (the "Reunderwriting"). That investigation has identified material breaches of the Mortgage Representations in 519 out of 565 Mortgage Loan Files as of the date of the amended complaint, a whopping 91.8 percent failure rate. The Reunderwriting found several material breaches, including (a) errors, misrepresentations, and/or gross negligence that was readily apparent on the Mortgage




Loan Files; (b) failure to comply with underwriting guidelines, including mandated employment, income, mortgage LTV and primary residency requirements; (c) significant documentation missing; and/or (d) failure to utilize a methodology in underwriting that employed objective mathematical principles designed to determine that at the time of origination, borrowers had the ability to make timely mortgage payments. The Trustee asserts that the breaches are systemic and are likely to negatively affect the value of the vast majority of the 4,890 mortgages in the Trust.

On October 20, 2011, certain certificate holders sent the Trustee a letter identifying specific defective loans and asserting that Nomura had an obligation to repurchase or cure the loans. The Trustee forwarded the letter to Nomura on January 26, 2012. A second letter was sent on December 15, 2011 and forwarded on December 20, 2011. A third letter was sent on May 4, 2012 and forwarded on May 16, 2012. A fourth letter was sent on July 12, 2012 and forwarded on July 17, 2012. The complaint alleges that Nomura had 90 days to repurchase or cure, but has not done so for any of the defective loans.

On December 20, 2011, Zambezi C2 L.L.C. and Zambezi C4 L.L.C. (collectively, "Zambezi"), who defendant describes as litigation hedge funds and who were certificate holders, commenced this action. On June 28, 2012, the Appellate Division, First Department handed down its decision in Walnut Place LLC v. Countrywide Home Loans, Inc., 96 AD3d 684 (1st Dept 2012), holding that individual investors, like the Zambezi Funds lack standing to sue. On July 11, 2012, defendant moved to dismiss the complaint for want of standing. On August 24, 2012, counsel for plaintiffs filed an amended complaint substituting the Trustee as plaintiff and thereby rendering the motion to dismiss moot. Defendant states that the Trustee agreed to be substituted only after Zambezi agreed to indemnify the Trustee. Under the terms of the PSA, the Trustee is authorized to demand indemnification.

The first cause of action (breach of contract/specific performance) alleges that Nomura failed to repurchase or cure any of the defective loans, in violation of Section 2.03(c) of the PSA. It seeks specific performance requiring Nomura to repurchase the defective loans. In the alternative, the Trustee seeks damages on behalf of the Trust. The second cause of action (breach of contract/rescission) alleges breach of the No Untrue Statement Covenant. Plaintiff alleges that the pervasive nature of the breaches constitutes a material breach of the MLPA. Plaintiff avers that money damages are insufficient because, given the breath of the breaches,




enforcement of Nomura's repurchase obligation would burden the Trust with an enormous expense and effort of having to re-underwrite each of the mortgages. The Trust thus seeks rescission of the sale of the Mortgage loans. The third cause of action (breach of contract/damages) duplicates the second cause of action, except that it seeks compensatory damages as an alternative to rescission.


Nomura advances three arguments in support of its motion to dismiss: (1) statute of limitations; (2) rescission and damages are not available because the contract limits remedies to substitution, repurchase or cure of the offending loan; and (3) failure to state a cause of action because the amended complaint does not adequately allege that any mortgage representation was breached. The court need only address the first of these.

Upon a proper motion, any cause of action that is barred by the statute of limitations must be dismissed (see CPLR 3211[a][5]). The statute of limitations for breach of contract is six years (see CPLR 213 [2]). A cause of action for breach of contract accrues at the time of the breach (see Ely-Cruikshank Co. v. Bank of Montreal, 81 NY2d 399, 402 [1993]). "Knowledge of the occurrence of the wrong on the part of the plaintiff is not necessary to start the Statute of Limitations running in [a] contract [action]" (id. at 403 [citation and internal quotation marks omitted]).

The Mortgage Representations were first made on December 1, 2005, the date as of which NAAC signed the PSA and MLPA. That date is more than six years before August 24, 2012, the date the Trustee was substituted in as Plaintiff. If the court were to accept that the Plaintiff's claims relate back to the date the summons with notice was filed by Zambezi (December 20, 2011), the suit would still be time-barred, because that date is more than six years after December 1, 2005, the date as of which the PSA and MLPA were signed. If however, the Mortgage Representations are deemed to have been made as of the Closing Date (December 21, 2005) and the claims were found to relate back, then the claims would not be time barred.3




Nomura contends that under New York law, a claim for breach of a contractual representation accrues on the date the representation is made (see Lehman Bros. Holdings, Inc. v. Evergreen Moneysource Mortg. Co., 793 F Supp 2d 1189 [WD Wash 2011] ["Evergreen"] and Structured Mortgage Trust 1997-2 v. Daiwa Fin. Corp., 02 Civ. 3232, 2003 WL 548868 [SDNY Feb. 25, 2003, Stein, J.] ["Daiwa"]). Both are RMBS putback cases applying New York law. In Daiwa, plaintiff alleged that defendant breached representations concerning characteristics of mortgages contained in a PSA. Plaintiff sued more than eight years after the PSA was executed. The court held the claim was time barred, reasoning that since the representations in the PSA "were not true when made, the statute of limitations began to run at that time and expired six yeas later" (Daiwa, 2003 WL 548868, at *2). In Evergreen, the plaintiff alleged that defendant breached contractual representations concerning the accuracy and truthfulness of information about mortgage loans purchased in 2003 and that the representations were untrue at the time of purchase. Plaintiff filed suit in 2010 and argued its claim was not time-barred because defendant's refusal to repurchase the loan was a separate breach of contract as to which its claim was timely. The court held that any duty to repurchase "is only triggered by a breach of any representations, warranties, or covenants" (Evergreen, 793 F Supp 2d at 1194).

Nomura argues that Plaintiff's claims are for breach of representations that occurred, if at all, no later than December 1, 2005 which is the "as of" date of the PSA and MLPA. Nomura adds that this is true even if the contract provides that the representations are made "as of" a future date, here the "Closing Date" (December 21, 2005) (see Lana & Edward's Realty Corp v. Katz/Weinstein Partnership, 26 Misc 3d 1238(A), *4-5 [Sup Ct, Kings County 2010, Demarest, J.]). Nomura thus argues that Plaintiff's claims accrued when the Mortgage Representations were made on December 1, 2005, and expired six years later, before Zambezi filed suit.

Defendant also argues that even if the relevant accrual date were December 21, 2005, Plaintiff's claims are nevertheless untimely because Zambezi, the plaintiff in the preexisting suit, lacked standing to sue and therefore the amended complaint does not relate back to the date the summons with notice was filed by Zambezi on December 20, 2011.

Defendant argues that Zambezi's lack of standing is established by the plain terms of the No Action clause of the PSA, which limits certificate holders' rights to sue to Servicer Defaults or Master Servicer Defaults. Although Plaintiff contends that Zambezi had standing to sue, understandably it does not elaborate in its opposition brief given the decision in Walnut Place




LLC, 96 AD3d at 684 ("certificate holders' action is barred by the 'no action' clause in the PSAs"). Instead, Plaintiff emphasizes that even if Zambezi did not have standing to sue, the claim relates back and the action survives.

"Relation-back applies to the amendment of claims and parties and is dependent upon the existence of a valid preexisting action" (Southern Wine & Spirits of Am., Inc. v. Impact Envtl. Eng'g, PLLC, 80 AD3d 505, 505-506 [1st Dept 2011]). No valid preexisting action exists when a plaintiff lacks capacity to sue (see Goldberg v. Camp Mikan-Recro, 42 NY2d 1029, 1030 [1977] [where the original plaintiff lacks standing to sue, there is no valid preexisting action for the purposes of the relation-back doctrine]). In face of these precedents, Plaintiff contends that "Goldberg has been either overruled or severely restricted by later decisions of the Court of Appeals" (Plaintiff's Memorandum of Law, p. 16, n. 12). Plaintiff cites Carrick v. Central General Hospital, 51 NY2d 242 (1980) and Snay v. Cohoes Memorial Hosp., 110 AD2d 1021, 1021 (3d Dept 1985) for this proposition. Carrick neither overruled nor "severely limited" Goldberg. In Carrick, the Court of Appeals interpreted CPLR 205, which permits a plaintiff (or his representative) whose timely claim is dismissed for a variety of reasons, including death of the plaintiff and pleading defects, up to six months beyond expiration of the limitation period to reinstate his suit. In such cases, the plaintiff who initiated the suit has standing to sue. The Court of Appeals did not address relation-back under CPLR 203 (f) (previously CPLR 203 [e]), the provision at issue in Goldberg and this case, where the plaintiff who initiated the case did not have standing and thus had no valid claim when he filed suit (see Southern Wine & Spirits of America, Inc., 80 AD3d at 505, 506 [1st Dept 2011] ["Relation back…is dependent upon the existence of a valid preexisting action"]; see also, Truty v. Federal Bakers Supply Corp., 217 AD2d 951, 952 [4th Dept 1995] [holding that where the original action for breach of contract was brought by parties without standing to sue, substituted plaintiffs may not serve an amended complaint after the statute of limitations had run because "there was no valid pre-existing action to which the amended complaint could relate back"]). Accordingly, the controlling date in this case is August 24, 2012, the date the Amended Complaint was filed to substitute in the Trustee as plaintiff.

Plaintiff argues that the Amended Complaint relates back despite Goldberg and some Appellate Division authority to the contrary. Plaintiff maintains that the First Department has held that where a plaintiff without standing is substituted by a plaintiff with standing after the




statute of limitations expires, such an amendment relates back to the date of commencement of the action for the purposes of the statute of limitations, so long as the substitution does not result in any prejudice or surprise to the defendant (see Fairbanks Capital Corp. v. Nagel, 289 AD2d 99, 100 [1st Dept 2001]).

In Fairbanks, the Appellate Division, First Department held that the initial plaintiff in its capacity as servicing agent for the Trustee which held the mortgage had standing to sue "based on the Trustee's delegation of authority over the subject mortgage" (id at p. 99). The court's alternative ruling that "[e]ven if [the original plaintiff's] status as servicing agent were not sufficient to confer standing upon it, the substitution of Fairbanks, the subsequent assignee of the mortgage, relates back to the original commencement of the action…for purposes of the Statute of Limitations, given that the substitution did not result in any prejudice or surprise to [defendant]" is inconsistent with Goldberg and the First Department's recent decision in Southern Wine & Spirits of America, Inc., 80 AD3d at 506. As the Court of Appeals reaffirmed in George v. Mt. Sinai Hsp., 47 NY2d 170, 179 (1979), "a necessary element of any attempt to utilize the 'relation-back' provisions of [CPLR 203[f]] is the existence of a valid pre-existing action to which the amendment can relate back." As in Goldberg, the original plaintiff in this case did not have standing to sue and therefore, there was no valid preexisting action to which the amendment (substituting the Trustee) can relate.

Plaintiff cites several cases in addition to Fairbanks in support of its position. Those cases are distinguishable. All turn on the fact — not present here — that the substituted plaintiff was a closely related corporate affiliate of the original plaintiff (see HSBC Guyerzeller Bank AG v. Chascona N.V., 42 AD3d 381, 382 [1st Dept 2007] [substituted plaintiff was affiliate in HSBC family]; American Home Assur. Co. v. Scanlon, 164 AD2d 751, 752 [1st Dept 1990] [substituted plaintiff was part of same interrelated group of insurance companies]; Frankart Furniture Staten Is. v. Forest Mall Assoc., 159 AD2d 322, 322 [1st Dept 1990] ["Leonard Frankel and Bernard Frankel are the principals of both [related] business entities"]).

At oral argument, Plaintiff's counsel cited additional cases, not referenced in its brief, where courts purportedly have held that an amendment substituting in a plaintiff with standing for a plaintiff without standing relates back to the commencement of the action for statute of limitations purposes. With permission of the court, Plaintiff's counsel submitted a letter listing several cases. The New York State court cases cited are readily distinguishable. In Matter of




Highland Hall Apts., LLC v. New York State Div. of Hous. & Community Renewal, 66 AD3d 678 (2d Dept 2009), the statute of limitations had not run as of the time the amendment was allowed substituting the new petitioner with standing for the original petitioner who lacked standing. The relation-back doctrine was not addressed. In New York State Thruway Auth. v. BE Contr. Corp., 280 AD2d 390 (1st Dept 2001), neither the statute of limitations nor relation-back doctrine was addressed (see also, MK W. St. Co. v. Meridians Hotels, 184 AD2d 312 [1st Dept 1992]). In Mansi v. New York City Tr. Auth., 146 AD2d 551, 552 (1st Dept 1989), the additional plaintiff had non-barred claims and both the original and additional plaintiffs were united in interest as to the transaction alleged in original complaint. In Bellini v. Gersalle Realty Corp., 120 AD2d 345, 347 (1st Dept 1986), the original plaintiff had preexisting claims, as it had the "burdens of ownership" at the time the complaint was filed. The cases decided in the federal courts are also distinguishable. In Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F3d 11 (2d Cir 1997), the shareholders were permitted to join the action of the corporation with valid preexisting claims following dismissal of the shareholder claims (brought initially by corporation due to defective assignment of the shareholder claims to corporation). In Abu Dhabi Commer. Bank v. Morgan Stanley & Co., 888 F Supp 2d 478 (SD NY 2012), there were valid preexisting claims. The statute of limitations and relation-back were not discussed. Similarly, in In re Vivendi Universal, S.A. Securities Litig., 605 F Supp 2d 570, 583-584 (SD NY 2009), there were valid preexisting claims4. In Chapple v. Fahnestock & Co., 2006 WL 2546563, *2 (ED NY, Sept. 1, 2006, No. 103-CV-04989-ENV-JA), the court permitted the bankruptcy trustee to substitute for the plaintiff who had a valid preexisting claim, but who lost standing to pursue employment discrimination claims upon filing for bankruptcy (see also Kotbi v. Hilton Worldwide, Inc., 2012 WL 914951, *3 [SD NY, Mar. 19, 2012, No. 11 Civ. 3550[TPG]] [substituting bankruptcy trustee for bankrupt plaintiff]; and Shaev v. Hampel, 2002 WL 31413805, *3 [SD NY, Oct. 25, 2002, No.99 Civ. 10578 [RMB] [same]. In Haddad Bros. Inc. v.




Little Things Mean A Lot, Inc., 2000 WL 1099866 (SD NY, Aug. 4, 2000, No. 00Civ.0578[AGS]), the court allowed the plaintiff who initially lacked standing to join a closely affiliated corporate plaintiff that had a valid claim.

Plaintiff also argues that its claims are not barred by the statute of limitations because each refusal of Nomura to repurchase the defective mortgages is an independent breach of contract separate and apart from the representations. On this theory, Plaintiff argues that Defendant has a continuing obligation to repurchase all defective mortgages and therefore the cause of action does not accrue until that obligation itself is breached (see Bulova Watch Co. v. Celotex Corp.. 46 NY2d 606 [1979]). In Bulova, the defendant sold plaintiff roofing materials, and provided a bond in which it agreed to make any repairs necessary to maintain the roof in water-tight condition for a period of twenty years. More than six years later, plaintiff filed suit after the roof had developed leaks which defendant failed to fix. Defendant maintained that the suit was barred by the statute of limitations. The court held that the suit was not time-barred, reasoning that the "bond obligations, as agreements contemplating services, were subject to a six-year statute…running separately from the damages occasioned each time a breach of the obligation to repair the bonded roof occurred….For this reason, the bond claims arising within six years of the commencement of this suit are timely, provided they also arose during the 20-year period to which the guarantee relates" (id. at 611). Plaintiff also relies on Lehman Bros. Holdings, Inc. v. Nat'l Bank of Ark., 2012 U.S. Dist. LEXIS 87265, at *12-13 [ED Ark June 25. 2012] and LaSalle Bank Nat'l Ass'n v. Lehman Bros. Holdings, Inc., 237 F Supp 2d 618, 638 [D Md 2002], cases that apply to New York law.

Bulova is inapposite. In that case, the defendant agreed to repair a roof for a period of twenty years. Thus, the defendant was obligated to fix the roof each time during that twenty year period the roof springs a new leak. In this case, the Mortgage Representations are alleged to have been false when made. Those representations did not arise or change over time. If the Mortgage Representations were false when made, they are still false today. If they were true when made, they are still true today. The repurchase obligation in this case is merely a remedy. It is not a duty independent of the Mortgage Representation breach of contract claims. The statute of limitations runs from the time of breach of the Mortgage Representations, not from the time plaintiff elected to make demands for repurchase.

Regarding the federal district court cases relied on by Plaintiff, those decisions misapply




a decision of the United States Court of Appeals for the First Circuit in Resolution Trust Corp. v. Key Fin. Svs., Inc., 280 F3d 12, 18 [1st Cir 2002] and are unpersuasive. The First Circuit case had nothing to do with the statute of limitations and does not hold that a failure to repurchase on demand constitutes an independent breach of contract. In New York, a cause of action for breach of contract occurs when the party making the claim possesses a legal right to demand payment (see Hahn Automotive Warehouse, Inc. v. Am. Zurich Ins. Co., 18 NY3d 765, 771 [2012]). The statute of limitations "begins to run from the date of the first alleged breach" (Evergreen, 793 F. Supp 2d at 1194), not from the time plaintiff chooses to seek a remedy. "To find otherwise would allow [plaintiff] to essentially circumvent the statute of limitations by indefinitely deferring its demand for payment" (id.). It appears that Plaintiff may have had a viable cause of action as early as December 1, 2005, e.g., a claim for rescission (see Lana & Edward's Realty Corp., 2010 NY Misc LEXIS 548, *11).

Because Plaintiff's causes of action, if any, accrued no later than December 21, 2005 (the "Closing Date") and the plaintiff with standing to sue appeared and filed its Amended Complaint on August 24, 2012, more than six years after Plaintiff's claims for breach of contract accrued, the complaint must be dismissed pursuant to CPLR 3211(a)(5). For this reason, the court need not decide whether the alleged misrepresentations were made for statute of limitations purposes "as of" December 1, 2005 when NAAC signed the MLPA and PSA or "as of" December 21, 2005.

Accordingly, it is hereby

ORDERED that the motion to dismiss the compliant is GRANTED in its entirety and the complaint is dismissed with costs and disbursements to defendant as taxed by the Clerk upon the submission of an appropriate bill of costs; and it is further

ORDERED that the Clerk is directed to enter judgment accordingly.

This constitutes the decision and order of the court.

DATED: May 10, 2013

1. At the request of the court, counsel for the parties provided a list of fourteen such cases involving statute of limitations issues currently pending in this court.

2. This section is numbered 8(xxxiv) in the MLPA, but should be numbered 8(xxxix).

3. Although the PSA and MLPA were signed by NAAC (in whose shoes Plaintiff stands) as of December 1, 2005, Plaintiff argues that the operative date is December 21, 2005 (the Closing Date) because PSA §2.03(b)(vii) provides that "[the representations and warranties set forth in Section 8 of the [MLPA] are true and correct as of the Closing Date." The representations and warranties under §7 of the MLPA were made "as of [December 1, 2005] and as of the Closing Date" and those under §8 were made "as of the Closing Date."

4. Notably, the court distinguished Perry v. Village of Arlington Heights, 186 F3d 826 (7th Cir 1999) where the United States Court of Appeals for the Seventh Circuit held that the district court properly dismissed the complaint in that case where plaintiff lacked standing at the time of commencement of the action (before the period of limitations expired) but thereafter gained standing after the statute of limitations had run. In that case, like this, there was no valid preexisting action. The court did declined to allow relation-back. Rather, it permitted plaintiff to bring a new claim based on allegations of events that happened within the period of limitation (see In re Vivendi Universal, 605 FSupp2d at 584).

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