121 A.D.3d 535
N.Y. App. Div.2014Background
- Plaintiff U.S. Bank sued DLJ Mortgage Capital claiming breaches of contractual representations and warranties in an RMBS pooling and servicing agreement (the PSA).
- Defendant moved to dismiss breach-of-warranty claims as time barred under the applicable statute of limitations.
- The trial court (IAS) denied that portion of DLJ’s motion; the First Department reviewed that denial on appeal.
- The key dispute concerned when a breach-of-warranty claim accrues for limitations purposes in the RMBS context: at contract execution/closing or later (e.g., after a demand-to-cure or replacement obligation).
- The PSA’s representations and warranties were made as of the closing date; the contract did not clearly alter the ordinary accrual rule.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| When does a contractual representation/warranty breach claim accrue? | Accrues at contract execution/closing when the representation is false. | Accrues later — e.g., after seller’s obligation to cure/replace has been triggered or exhausted. | Accrual is at the time the contract is executed/closed if the representation was false when made. |
| Can a demand to cure or a seller’s failure to cure restart or create a new limitations period? | Demand/cure obligation can create a separate breach that triggers a new limitations period. | Demand-to-cure is a precondition to suit but does not reset accrual; it cannot make a time-barred claim timely. | Demand to cure is a precondition; it may render a claim untimely but cannot make an untimely claim timely. |
| Can accrual occur before a binding contract/closing in RMBS deals? | (Implicit) Yes if effective date in contract is earlier. | No; accrual cannot precede a binding contract or the creation of the trust that receives R&Ws. | Accrual cannot precede formation of a binding contract or the creation/closing of the trust; effective-date language cannot create an earlier accrual. |
| Whether ACE Sec. Corp. controlling or should be overruled | Plaintiff asked to overturn ACE and hold cure obligations start new limitations periods. | Defendants relied on ACE to argue accrual at execution/closing. | The court declined to overturn ACE; reaffirmed accrual-at-execution rule and that cure demands do not restart limitations. |
Key Cases Cited
- ACE Sec. Corp. v. DB Structured Prods., Inc., 112 A.3d 522 (App. Div. 2013) (accrual of false contractual warranty claim occurs at contract execution)
- U.S. Bank Natl. Assn. v. DLJ Mtge. Capital, Inc., 42 Misc.3d 1213(A) (Sup. Ct. 2014) (trust in RMBS transactions typically does not exist prior to closing; accrual before closing is generally improper)