Central Mortgage Co. v. Morgan Stanley Mortgage Capital Holdings LLC
27 A.3d 531
| Del. | 2011Background
- Central Mortgage (CMC) purchased servicing rights from Morgan Stanley and later sued for breaches related to mortgage loans allegedly not Agency-eligible and misrepresented loan data.
- Master Agreement governing the transactions selected New York law with Delaware courts having exclusive jurisdiction, and contained an integration clause and a 60-day cure notice provision for breaches.
- Agency Transfer Agreements made CMC and Morgan Stanley jointly and severally liable to Agencies for representations, warranties, and servicing duties on Agency-related loans.
- In 2007–2009, many loans fell delinquent; Morgan Stanley reduced price, amended the Master Agreement to require repurchase at CMC’s option for 90+ day delinquencies within 12 months, and later Agencies demanded repurchases/make-whole payments.
- Morgan Stanley stopped repurchasing/reimbursing; CMC reimbursed or repurchased loans from Agencies and brought suit in December 2009; Vice Chancellor dismissed most claims, including dismissing breach of contract claims without prejudice.
- Delaware Supreme Court reversed, allowing CMC’s breach-of-contract claims to proceed on adequacy of notice at the pleadings stage and allowing the implied covenant claim to survive separate from the contract claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Adequacy of notice under the Master Agreement | CMC alleged it provided prompt written notice with grounds and that forwarding Agency files sufficed. | Notice was inadequate and not specific, violating the cure provision, since attachments were late and did not identify breaches. | Notice allegation survives at pleading stage; not decided on merits. |
| Implied covenant viability separate from breach of contract | CMC’s implied covenant claim rests on a bait-and-switch and distinct facts not duplicative of contract claims. | Implied covenant claim duplicative of contract claims should be dismissed. | Implied covenant claim survives because it rests on distinct facts and theory not duplicative of contract claims. |
Key Cases Cited
- Savor, Inc. v. FMR Corp., 812 A.2d 894 (Del.2002) (pleading standards for motions to dismiss; conceivability standard)
- Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 817 A.2d 160 (Del.2002) (delaware pleading standards and standard of review for dismissals)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard for federal actions)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (expanded plausibility standard for pleading claims)
- Desimone v. Barrows, 924 A.2d 908 (Del.Ch.2007) (recognizes implied covenant analysis and non-duplication of claims)