Westlb AG, New York Branch v. BAC Florida Bank
1:11-cv-05398
S.D.N.Y.Sep 28, 2012Background
- WestLBLoaned USMF $360 million under WWMA to acquire BAC mortgages, with USMF purchasing mortgaged loans and BAC servicing; transaction documents govern disposition of REO properties.
- USMF foreclosed on about 82 mortgages (REO properties) by Sept 30, 2011, totaling roughly $19.2 million; additional 104 loans likely REO with ~$27.6 million in loan balances.
- Servicing Agreement requires BAC to manage REO properties for the benefit of USMF, WestLB, and Lenders and to dispose of REOs in a commercially reasonable manner.
- Disposal rights include cash sale directives with WestLB consent not to be unreasonably withheld; USMF may direct BAC on disposition terms, subject to agent consent.
- USMF directed BAC to rent REO properties rather than sell, allegedly to avoid balance-sheet losses; WestLB did not consent to rental, and BAC did not verify WestLB consent.
- WestLB alleges breaches of the Servicing Agreement and WWMA, plus waste and indemnification claims; USMF accelerated repayment after alleged events of default, but no payments were disputed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether USMF breached by directing BAC to rent REO properties without WestLB consent | WestLB contends consent was required for disposition; rental constitutes improper disposition. | Disposition for cash sales only; rental not governed by consent provision; no breach. | No plausible breach; consent not required for rentals under the Servicing Agreement. |
| Whether BAC breached by renting rather than selling REO properties | BAC failed to dispose promptly and prudently, violating Servicing Agreement. | Agreement permits BAC to manage and dispose in commercially reasonable manner; no duty to rent-cum-sale in absence of consent breach. | Breach not established; allegations are conclusory and fail to plead plausible breach. |
| Whether WestLB adequately pled acceleration as a result of an Event of Default | USMF's alleged breaches trigger Event of Default enabling acceleration. | No proven default under the transaction documents; acceleration unsupported. | Insufficient pleading to show an Event of Default that would justify acceleration. |
| Whether WestLB states a viable waste claim against BAC/USMF | Waste by maintaining rental operations, depleting collateral value. | No specific impairment of security or consent-driven expenditures; waste claim unsupported. | Waste claim dismissed for lack of impairment and contractual basis; expenditures not shown to be wrongful. |
| Whether WestLB can seek specific performance or indemnification | Breach would entitle WestLB to specific performance and indemnification. | Without viable breach, those claims fail as a matter of law. | Concluded claims for specific performance and indemnification fail due to absence of viable breach. |
Key Cases Cited
- National Markets & State Banks v. Sterling National Bank, 392 F.3d 520 (2d Cir. 2004) (pleading standards and cognizable damages in contract cases)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. Supreme Court 2009) (plausibility pleading standard)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (U.S. Supreme Court 2007) (pleading requires plausible entitlement to relief)
- Chambers v. Time Warner, Inc., 282 F.3d 147 (2d Cir. 2002) (documents integral to complaint may be considered at dismissal)
- Ellington Credit Fund, Ltd. v. Select Portfolio Servicing, 837 F. Supp. 2d 162 (S.D.N.Y. 2011) (waste/impairment theories in mortgage servicing context)