59 F.4th 905
8th Cir.2023Background
- RFC (a sponsor) purchased loans from originators including PRMI under Client Contracts (Mar 2000, Jun 2001) that incorporated Seller Guides; PRMI sold >2,300 loans to RFC.
- After the 2008 housing collapse RFC filed Chapter 11 (2012); a confirmed Plan created ResCap Liquidating Trust to pursue originator indemnity claims arising from RFC’s RMBS settlements.
- ResCap sued PRMI in the “Second Wave.” The district court allowed statistical sampling to prove liability and damages and tried the case to the bench in Feb–Mar 2020.
- ResCap’s trial proof: Butler re‑underwrote samples to identify breaching loans; Dr. Snow applied an “allocated breaching loss” methodology and a 28% bankruptcy settlement factor to compute PRMI’s share ($5.4M).
- The district court found ResCap proved the contract, contributing-cause causation, reasonableness of the bankruptcy settlements, accepted Snow’s damages model, and awarded $5.4M plus $10.6M in attorney’s fees, costs, and prejudgment interest.
- The Eighth Circuit affirmed on all major issues but vacated and remanded for recalculation of postjudgment interest, holding federal postjudgment interest (28 U.S.C. §1961) governs after the money judgment.
Issues
| Issue | Plaintiff's Argument (ResCap) | Defendant's Argument (PRMI) | Held |
|---|---|---|---|
| Sole discretion to determine "Event of Default" | Section 113(B) gives RFC (and assignee ResCap) sole discretion to determine Events of Default for repurchase and indemnity remedies | Section 113(B) is not an independent grant; indemnity provision lacks an explicit sole-discretion grant so ResCap’s determinations should be reviewable | Court affirmed Terrace Mortgage precedent: Client Guide gives RFC/ResCap sole discretion to determine Events of Default for indemnification (no broad additional ruling) |
| Indemnification for claims against RFC including negligence/fraud | Guides clearly and unequivocally indemnify RFC for losses ‘‘resulting from’’ an Event of Default, including claims RFC faced in reliance on PRMI representations | Minnesota law requires express language to shift liability for an indemnitee’s own negligence and disfavours indemnifying fraud; Guides don’t meet that standard for intentional misconduct | Court held the Guides’ language is clear and unequivocal; indemnity covers claims based on RFC’s negligence and related third‑party claims; fraud claims are indemnifiable absent an adjudicated finding of intentional misconduct by RFC |
| Proof standard and use of sampling to prove breaches/damages | Contributing‑cause standard is appropriate; statistical sampling and allocated breaching‑loss methodology are necessary and reliable given scope and unmanageability of loan‑by‑loan proof | ResCap must prove actual RFC breaches loan‑by‑loan (not merely increased risk); sampling is unreliable and speculative | Court approved contributing‑cause standard and upheld the sampling and Snow’s allocation methodology as reasonable and nondubious under Minnesota law; damages not speculative |
| Allocation of multi‑party bankruptcy settlements ("relative value") | Bankruptcy Plan allocated allowed claims pro rata; Snow’s methodology fairly apportioned PRMI’s share of indemnifiable losses without speculative relative‑value adjustments | Must account for relative strength/value of different Trust/Monoline claims (citing UnitedHealth/King’s Cove); otherwise award may cover claims PRMI did not owe | Court distinguished those insurer allocation cases, found all settled claims were indemnifiable under the Guides, and upheld the allocation approach as consistent with Minnesota law and the bankruptcy settlement process |
| Post‑trial fees, discovery of time records, and interest rate | ResCap sought contractual fee shift and prejudgment interest; redacted invoices reviewed in camera; argued state prejudgment interest applied until final adjudication on fees | PRMI argued redactions denied due process, fees were unreasonable/disproportionate, and state 10% prejudgment interest incorrectly applied after the money judgment | Court upheld in‑camera review and the lodestar fee award as reasonable (no abuse of discretion), but held the district court erred applying Minnesota’s higher prejudgment rate after the August 17, 2020 money judgment and remanded to apply federal postjudgment interest (28 U.S.C. §1961) for that interim period |
Key Cases Cited
- Residential Funding Co., LLC v. Terrace Mortgage Co., 725 F.3d 910 (8th Cir. 2013) (interpreting Client Guide sole‑discretion language and upholding unreviewable determinations of Event of Default)
- DeWitt v. London Road Rental Ctr., 910 N.W.2d 412 (Minn. 2018) (Minnesota requires express language to indemnify an indemnitee for its own negligence)
- UnitedHealth Group Inc. v. Executive Risk Specialty Ins. Co., 870 F.3d 856 (8th Cir. 2017) (insured must allocate unallocated settlement between covered and non‑covered claims to meet prima facie burden)
- King’s Cove Marina, LLC v. Lambert Com. Constr. LLC, 958 N.W.2d 310 (Minn. 2021) (allocation test for unallocated settlements reflecting UnitedHealth principles)
- Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982) (reasonableness of pretrial settlements for indemnity claims)
- Minneapolis Mill Co. v. Wheeler, 16 N.W. 698 (Minn. 1883) (settlement made under just terms does not defeat indemnity claim)
- Neth. Ins. v. Main St. Ingredients, LLC, 745 F.3d 909 (8th Cir. 2014) (indemnitee need only show it could have been liable when settlements avoid loan‑by‑loan proof)
- Weitz Co., Inc. v. Mo‑Kan Carpet, Inc., 723 F.2d 1382 (8th Cir. 1983) (federal postjudgment interest statute governs interest on money judgments in federal court)
- Fox v. Vice, 563 U.S. 826 (2011) (fee awards aim to do "rough justice," not auditing perfection)