Assured Guaranty Municipal Corp. v. Flagstar Bank, FSB, 920 F. Supp. 2d 475

Assured Guaranty alleges Flagstar breached the Transaction Documents governing the 2005-1 and 2006-2 HELOC securitizations by including defective loans.
The three Transaction Documents (SSAs, MLPAs, and I&Is) created a cure-or-repurchase remedy for material breaches and designated Assured as a third-party beneficiary.
Assured conducted due diligence and later relied on Flagstar’s representations and warranties to insure the securitizations, while Flagstar argues many issues were non-material or curable.
Walzak, Assured’s expert, found a large majority of the sampled loans defective (606 of 800) with substantial fraud and underwriting failures; Flagstar’s Griggs disputed the materiality of many findings.
The court held hearings on Rule 702 admissibility, admitted Walzak’s qualitative findings, and ultimately found Flagstar breached the contracts and was obligated to reimburse Assured for its insured losses; damages and costs would follow.
Damages were calculated to be $89.2 million plus interest, with costs and attorneys’ fees to be determined.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Breach of contract—were loans in breach of reps and warranties?	Assured—yes, material breaches of reps and warranties per MPLA/SSA.	Flagstar—breaches were not material or were cured.	Yes, material breaches found.
Materiality—did breaches materially increase Assured’s risk of loss?	Walzak’s defects increased risk; many breaches were material.	Some breaches were immaterial or curable.	Yes, breaches materially increased loss risk.
Awareness—did Flagstar have awareness triggering repurchase/cure obligations?	January 2009 repurchase demand put Flagstar on notice of pervasive breaches.	Awareness limited to asserted subset; not all loans.	Constructive awareness triggered repurchase/cure obligations.
Damages—may Assured recover via cure or repurchase or via reimbursement of paid claims?	Damages through reimbursement of claims paid, based on Wallzak/Mason analysis.	Cure/remedy limits and sampling cannot determine global damages.	Assured entitled to $89.2 million plus interest; sampling permitted for damages.
Costs and fees—are attorneys’ fees reimbursable under the I&Is?	Fees/expenses reimbursable for enforcement of rights under Transaction Documents.	Not precluded by “sole remedy” language.	Costs and fees reimbursable; documentation to be provided for in camera review.

Diesel Props S.r.l. v. Greystone Bus. Credit II LLC, 631 F.3d 42 (2d Cir. 2011) (damages causation essential in contract actions)
Amorgianos v. N. R.R. Passenger Corp., 303 F.3d 256 (2d Cir. 2002) (rigorous standards for admissibility under Rule 702)