2014 WL 2766114
D. Minn.2014Background
- RFC, an issuer of mortgage-backed securities, filed Amended Complaints against Embrace Home Loans, Hometown Mortgage Services, and Circle Mortgage alleging breach of contract and indemnification related to defective loans sold to RFC.
- RFC went through Chapter 11 bankruptcy, with a confirmed plan on December 11, 2013; the cases involve claims arising from RFC’s securitization of loans.
- RFC’s damages relate to loans alleged defective under the parties’ Client Guide representations and warranties; RFC seeks indemnification and damages.
- Defendants moved to dismiss arguing RFC’s pleadings were insufficient under Rule 8(a) and that some claims are time-barred; the court consolidated the motions for argument.
- The court applied Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal to assess plausibility, and analyzed tolling under 11 U.S.C. § 108(a) with respect to the bankruptcy stay and plan.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether RFC’s breach-of-contract claim is time-barred. | RFC argues tolling under § 108(a) covers loans sold before May 14, 2006. | Embrace contends claims accrued at loan sale; later tolling may not apply. | Partially granted: claims for loans sold before May 14, 2006 barred; tolling applies for those before that date, but not for later loans. |
| Whether RFC pleadings meet Rule 8(a) specificity for loan-by-loan defects. | RFC contends aggregate defects support claims against each lender. | RFC’s pleadings are too vague about specific loans and defects. | Dismissed without prejudice the breach-of-contract claim for loans sold on/after May 14, 2006; repleading required. |
| Whether indemnification claims are timely and properly pled. | RFC argues indemnity claims relate to settlements and post-settlement obligations. | Indemnity accrues when liability is finally fixed or after payment is made; limitations may bar. | Indemnification claims not time-barred as to when RFC paid investors; but claims depend on accrual rules and are dismissed without prejudice. |
| Whether the pleading against Circle Mortgage is sufficient or should be dismissed. | RFC alleges broad defects across Circle’s loans. | Pleading lacks loan-specific defects and exhibits; insufficient notice. | Breach-of-contract claims for loans before 6/2013 dismissed with prejudice; others dismissed without prejudice. |
Key Cases Cited
- Twombly, Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility pleading standard for federal complaints)
- Iqbal, Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (threadbare recitals not enough for relief; plausibility required)
- Ace Secs. Corp. Home Equity Loan Trust v. DB Structured Prods., Inc., 5 F. Supp. 3d 543 (S.D.N.Y. 2014) (loan-by-loan specificity not required in Ace; distinguishable facts here)
- Metro. Prop. & Cas. Ins. Co. v. Metro. Transit Comm’n, 538 N.W.2d 692 (Minn. 1995) (indemnity accrues when liability is finally fixed or after payment)
- Pederson v. Am. Lutheran Church, 404 N.W.2d 887 (Minn. Ct. App. 1987) (contract accrues at time of breach; six-year limit applies)
- Levy v. Ohl, 477 F.3d 988 (8th Cir. 2007) (public records and attached documents may be considered on a Rule 12(b)(6) motion)
- Morton v. Becker, 793 F.2d 185 (8th Cir. 1986) (standard for evaluating complaints on a motion to dismiss)