133 A.D.3d 96
N.Y. App. Div.2015Background
- These consolidated appeals arise from trustees (plaintiffs) suing Nomura Credit & Capital (defendant), the RMBS sponsor, over alleged widespread breaches of representations and warranties in Mortgage Loan Purchase Agreements (MLPAs) and Pooling & Servicing Agreements (PSAs) for four RMBS trusts.
- Defendant warranted (section 8) specific loan-level representations (e.g., appraisal standards, underwriting, no fraud) and a broader "No Untrue Statement" clause (section 7) covering documents and disclosures. MLPAs/PSAs provided a repurchase-or-cure remedy and a "sole remedy" clause limiting purchaser/trustee recovery to that protocol.
- Plaintiffs delivered many breach notices alleging systemic defects and missing loan files; some loans were later foreclosed, liquidated, or otherwise not repurchasable. Plaintiffs sought repurchase, specific performance, and monetary damages where repurchase/cure is impossible, plus claims under section 7 and rescission.
- Defendant moved to dismiss; the motion court generally allowed breach-of-contract claims to proceed but limited relief under the sole-remedy provisions, dismissed some claims as duplicative, and rejected rescission claims.
- The Appellate Division (First Dept) considered (1) whether the contractual "sole remedy" precludes monetary damages when repurchase/cure is impossible, (2) whether section 7 claims are barred by the sole-remedy clause that explicitly references section 8, (3) whether failure to give prompt notice is actionable, and (4) whether rescission and good-faith claims survive.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether "sole remedy" (repurchase/cure) bars monetary damages when repurchase/cure is impossible | Plaintiffs: equity may award damages in lieu of impossible specific performance; damages available for liquidated/foreclosed loans | Nomura: parties limited remedies to repurchase/cure; if loans liquidated no recovery beyond specific performance | Court: Damages allowed where repurchase/cure is impossible; equitable damages can substitute for impracticable specific performance |
| Whether "sole remedy" bars claims under section 7 (No Untrue Statement) as well as section 8 | Plaintiffs: section 7 claims distinct; sole-remedy language limits only section 8 breaches | Nomura: sole-remedy should foreclose non-repurchase relief for all related contractual breaches | Court: Section 9(c)/2.03 refer expressly to breaches of Section 8; plaintiffs may seek damages for section 7 breaches; sole-remedy does not by its terms cover section 7 |
| Whether plaintiffs may seek damages for defendant's failure to give prompt written notice after discovery of breaches | Plaintiffs: failure to notify is independent breach hindering trustee's remedies and thus damages are recoverable | Nomura: any remedy for notification/failure is subsumed by the repurchase/cure regime | Court: Plaintiffs may pursue damages for failure to provide prompt notice of discovered section 8 breaches |
| Whether rescission and implied covenant (good faith) claims survive | Plaintiffs: rescission and good-faith remedies available despite sole-remedy; alternatively pled | Nomura: rescission waived by contractual sole remedy; implied covenant duplicative of contract | Court: Rescission not available where damages are adequate; good-faith claim dismissed as duplicative of breach claim |
Key Cases Cited
- Metropolitan Life Ins. Co. v. Noble Lowndes Int'l, 84 N.Y.2d 430 (N.Y. 1994) (parties may contractually limit remedies; courts honor risk allocation)
- Doyle v. Allstate Ins. Co., 1 N.Y.2d 439 (N.Y. 1956) (equity may award damages in lieu of impracticable specific performance)
- EBC I, Inc. v. Goldman, Sachs & Co., 5 N.Y.3d 11 (N.Y. 2005) (pleading standards on motion to dismiss; courts evaluate whether facts fit a cognizable theory)
- Leon v. Martinez, 84 N.Y.2d 83 (N.Y. 1994) (pleading: complaints construed liberally; allegations accepted as true on CPLR 3211 motions)
- Ambac Assur. Corp. v. EMC Mtge. LLC, 121 A.D.3d 514 (1st Dep't 2014) (interpreting broader sole-remedy language in MLPA context)
- ACE Sec. Corp. Home Equity Loan Trust v. DB Structured Prods., Inc., 25 N.Y.3d 581 (N.Y. 2015) (RMBS repurchase protocol and limits on relief; context for systemic-breach allegations)
- Rudman v. Cowles Communications, 30 N.Y.2d 1 (N.Y. 1972) (rescission unavailable when damages provide adequate relief)