MEMORANDUM AND ORDER
In this diversity action, Plaintiff, Homeward Residential, Inc., sues Defendant, Sand Canyon Corporation, for breach of contract and indemnification. Defendant moves to dismiss the amended complaint (the “complaint”) pursuant to Rules 8(a), 9(b), and 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons stated below, Defendant’s motion is GRANTED in part and DENIED in part.
BACKGROUND
The following facts are taken from the complaint and accepted as true for the purposes of this motion. See ATSI Commc’ns, Inc. v. Shaar Fund, Ltd.,
I. Overview
In 2006, Defendant, a mortgage originator, sold a pool of mortgage loans and in connection with that sale, made more than fifty representations and warranties regarding the loans. Defendant represented, among other things, that the loans complied with its stated underwriting guidelines, that the information Defendant had provided about the loans was true and correct, and that, to Defendant’s knowledge, there had been no fraud in the origination of the loans. Am. Compl. ¶¶ 1, 2, ECF No. 33. The complaint alleges that 96 of the loans sold breach Defendant’s representations and warranties and that Defendant has failed to cure or repurchase the defective loans. See id. at ¶¶ 3, 4.
II. RMBS Securitization
Residential mortgage-backed securities (“RMBS”) are a type of asset-backed security collateralized by residential mortgages. In a RMBS securitization, a mortgage originator, or a sponsor, first assembles a pool of mortgage loans. This pool of loans is then transferred by the originator or sponsor to an affiliated entity called the “depositor.” The depositor then transfers the loans to a mortgage trust. The trust then issues securities — usually referred to as “certificates”— entitling holders to a specified portion of the monthly revenue stream produced by the borrowers’ principal and interest payments. The money received from the sale of the certificates flows back to the originator or sponsor as payment for the loans. Id. at ¶ 9.
III. The Parties
Defendant is a California corporation with its principal place of business in Irvine, California. Until 2008, Defendant was known as Option One Mortgage Corporation. Id. at ¶ 6. Defendant originated the mortgage loans at issue (or purchased them from a correspondent lender), and transferred the loans to Option One Mortgage Acceptance Corporation (the “Depositor”). This transfer was structured as a sale, and the purchase of the loans is documented in the Mortgage Loan Purchase Agreement (the “Purchase Agreement”). Id. at ¶ 10. The Purchase Agreement sets forth the representations and warranties at issue. See id. at ¶ 13. The Depositor then conveyed “all right, title and interest” in the mortgage loans to a trust (the “Trust”) by means of a Pooling and Servicing Agreement (the “PSA”). See id. at ¶ 11. The PSA expressly states that Wells Fargo Bank, N.A. (the “Trustee”), id. at ¶ 11, may seek redress for “breach by the Originator of any representation, warranty or covenant under the ... Purchase Agreement.” Id. at ¶ 20 (internal quotation marks omitted).
Plaintiff is a Delaware corporation with its principal place of business in Coppell, Texas. Plaintiff is the servicer of the Trust. Id. at ¶ 5. The PSA gives Plaintiff, as servicer of the Trust, the authority to enforce Defendant’s obligations — including its obligation “ ‘to purchase a Mortgage Loan ... on account of missing or defective documentation or on account of a breach of a representation, warranty or covenant’ — ‘for the benefit of the Trustee and the Certificateholders.’ ” Id. at ¶ 21 (citation omitted).
IV. Defendant’s Representations and Warranties
In the Purchase Agreement, Defendant made over fifty representations concerning
• “‘[t]he information set forth on each Schedule [of mortgage loans]’ — which identifies the borrower, the mortgaged property’s appraised value, and loan-to-value ratios, among other information— ‘is true and correct in all material respects’;
• ‘[t]here is no material default, breach, violation or event of acceleration existing under the [related] Mortgage or the related Mortgage Note’;
• ‘[t]o the Originator’s knowledge, there was no fraud involved in the origination of the Mortgage Loan by the mortgagee or by the Mortgagor, any appraiser or any other party involved in the origination of the Mortgage Loan’;
• the mortgage file ‘contains an appraisal of the Mortgaged Property indicating the appraised value at the time of origination for such Mortgaged Property,’ and ‘[e]ach appraisal has been performed in accordance with the provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989’;
• ‘[e]aeh Mortgage Loan was originated substantially in accordance with the Originator’s underwriting criteria, which are at least as stringent as the underwriting criteria set forth in the Prospectus Supplement’;
• and ‘[e]ach Mortgage Loan was originated in compliance with all applicable local, state and federal laws.’ ”
Id. at ¶ 13 (citations omitted). Under the Purchase Agreement, “[a]ny breach by [Defendant] of its representations that materially and adversely affects the value of a loan or materially and adversely affects the interests of the Trust and its Certifieateholders in that loan requires [Defendant] to cure the breach within 120 days of discovery or notice of the breach. If [Defendant] cannot cure the breach, it is obliged to repurchase the loan.” Id. at ¶ 16 (citations omitted).
V. Defendant’s Alleged Breaches
In a letter dated March 8, 2012, the Trustee gave Defendant notice of the alleged breaches of Defendant’s representations and warranties with respect to certain mortgage loans. The notice enclosed a letter from a certificate holder identifying the loans and describing the nature of the breaches and the grounds for concluding that there had been a breach. The Trustee enclosed a schedule (the “Trustee Schedule”) that identified the representations and warranties that were breached for each of the loans and described the defects for each of those loans, along with a disk with nearly 4,500 pages of materials supporting the allegations. Id. at ¶3. The Trustee’s letter and the supporting materials are attached to the complaint as Exhibit A.
Broadly, the breaches described in the letter and the supporting materials (all incorporated by the complaint) include allegations that Defendant, in violation of its underwriting guidelines, failed to make reasonable determinations of borrowers’ ability to repay the loans. See id. at ¶ 26. Under Defendant’s underwriting guidelines, borrowers’ stated incomes must be reasonable based on their stated income source, employment position, current credit profile, and other factors. Id. at ¶ 25. Many borrowers’ stated incomes and stated debts were allegedly unreasonable given the circumstances, and Defendant “ignored clear red flags that indicated that the borrower was unlikely to be able to repay the loan.” Id. at ¶26. The failure to ensure reasonable stated incomes and stated debts led to inaccurate debt-to-income (“DTI”) ratios (the borrower’s monthly debt obligations as a percentage of his or her monthly income). Id. at ¶27. Because Defendant’s underwriting guidelines set maximum DTI ratios, failure to ensure reasonable stated incomes resulted in Defendant originating loans outside of its underwriting guidelines. See id.
Loan-to-value (“LTV”)
Plaintiff also alleges that Defendant departed from its underwriting guidelines because some loan files are missing key documentation. Id. at ¶43. Plaintiff contends that to underwrite loans in accordance with applicable guidelines, an underwriter must have access to all of the documents to determine whether to approve the loan application. Id.
Lastly, the Trustee Schedule and the supporting materials allege many granular violations of the representations and warranties, including insufficient credit score, failure to obtain clear title, failure to abide by federal, state, and local lending regulations, among other breaches. See Am. Compl. Ex. A.
Defendant responded to the Trustee’s letter on July 10, 2012, refusing to cure or repurchase any of the loans. Am. Compl. ¶ 3. Defendant has not cured or repurchased any of the 96 loans to date. Id.
DISCUSSION
To prevail on any breach of contract claim under New York law, a plaintiff must plead: (1) the existence of a contract; (2) performance of the contract by one party; (3) breach by the other party; and (4) damages attributable to the breach. See Beautiful Jewellers Private Ltd. v. Tiffany & Co.,
I. Pleading Standard
To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must plead sufficient factual allegations in the complaint that, accepted as true, “ ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal,
For a fraud claim “to comply with Rule 9(b), the complaint must: (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.” Lerner v. Fleet Bank, N.A,
A. Lengthy Attachments
Rule 8 of the Federal Rules of Civil Procedure requires plaintiffs to set forth a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R.Civ.P. 8(a)(2). Rule 10 of the Federal Rules of Civil Procedure provides: “A statement in a pleading may be adopted by reference elsewhere in the same pleading or in any other pleading or motion. A copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes.” Fed.R.Civ.P. 10(c). Thus, when assessing the legal sufficiency of a claim, the Court may consider “the facts alleged in the complaint, and any document attached as an exhibit to the complaint or incorporated in it by reference.” Miotto v. Yonkers Public Schs.,
Defendant argues that courts dismiss complaints where the “plaintiff sets forth the bulk of its allegations in attachments to the complaint and forces the defendant (and the court) to sift through the attachments to divine the claims and the supporting facts.” Def. Mem. 17 (citing United States v. Erie Cnty.,
Exhibit A to the complaint contains the Trustee Schedule, which identifies the 96 loans where breach is alleged. See Am. Compl. Ex. A. By means of well-organized columns and rows, the Trustee Schedule identifies for each loan which of the representations Defendant allegedly breached (citing the specific provision of the Purchase Agreement) and the grounds for alleging breach (in thorough yet succinct paragraphs). See id. The allegations of breach in the attachment are specific enough to satisfy the requirements of Rule 8. Unlike the attachments or materials incorporated by reference in Erie Cnty., Lockheed-Martin, and Taurus, the Trustee Schedule here is user-friendly and ties the specific allegations of breach to the specific clauses of the contract, giving Defendant more than sufficient notice of what Plaintiffs claims are and upon what grounds they rest. Although the supporting materials (the loan files, underwriting guidelines, etc.) could be better organized (i.e., arranged in the same order as the loans are listed in the Trustee Schedule), this does not
B. Fraud Pleading
Plaintiff asserts breach of contract claims, which typically only need to meet the pleading requirements of Fed.R.Civ.P. 8(a). However, Defendant argues that because many of the complaint’s allegations sound in fraud, they are subject to the heightened pleading standard of Fed.R.Civ.P. 9(b). Plaintiff argues that the underlying allegations of fraud in the complaint (by borrowers when reporting income, debt, and employment and by appraisers when performing appraisals) are not subject to Rule 9(b). Plaintiff states that Defendant has failed to point to any eases where “Rule 9(b) applies ‘at one remove’— i.e., when (as here) the fraud alleged is not by the defendant but by a third-party.” PI. Mem. 26 (underline in original).
Rule 9(b) applies to “claims insofar as the claims are premised on allegations of fraud. By its terms, Rule 9(b) applies to ‘all averments of fraud.’ This wording is east in terms of the conduct alleged, and is not limited to allegations styled or denominated as fraud or expressed in terms of the constituent elements of a fraud cause of action.” Rombach v. Chang,
Plaintiff argues that even if Rule 9(b) applies (which it does), the complaint satisfies the Rule’s requirements. With respect to borrower fraud, Plaintiff states that, “the complaint and its exhibits identify the speaker (i.e., the borrower), the false statement (e.g., misstatement of income or debt), where the statement was made (the loan application), and the grounds for saying that the statement was false (e.g., a subsequent bankruptcy filing revealing the borrower’s true income at the time of his loan application).” PL Mem. 26-27 (underline in original). In response, Defendant argues that “Plaintiff cannot rely on the exhibits attached to its Amended Complaint to establish the particularized facts necessary to plead a fraud claim for each of the loans as to which it alleges some type of fraud,” citing W. Coast Roofing & Waterproofing, Inc. v. Johns Manville, Inc.,
C. Incorporation of Allegations from Another Complaint
Plaintiff must also satisfy the requirements of Rule 9(b) with respect to its allega
The allegations of inaccurate appraisals and failure to follow proper protocol are, standing alone, insufficient to support a strong inference of fraudulent intent by the appraisers, as required by Rule 9(b). See Fed. Hous. Fin. Agency v. JPMorgan Chase & Co.,
Citing the complaint of Cambridge Place Investment Management Inc. v. Morgan Stanley & Co., Inc., Case No. 10-2741-BLS1 (Mass. Sup.Ct. Suffolk Co. Oct. 14, 2011), Plaintiff also alleges that Defendant’s employees have stated that Defendant knowingly violated its standards for underwriting and appraisals. Am. Compl. ¶ 36. One confidential witness, a former underwriter of Defendant, allegedly averred that ‘“[o]f course [appraisers] inflated values,’ and ... if an underwriter questioned the appraised value, the account executive and branch manager would override the underwriter’s objection, as with any other red flag in a loan file.” Id. Similarly, another confidential witness, a staff review appraiser of Defendant from January 2004 to May 2007, “stated that the appraisals ‘were all bad.’ He considered the appraisals borderline fraudulent, not merely, incompetent, but was unable to prevent loans based on the flawed appraisals.” Id. When he objected to the bad appraisals, “the loan officer would complain to the branch manager, who would complain to the Appraisals Department at headquarters in Irvine, California, and on up the chain until someone high enough in the Underwriting and Sales Department said to go forward with the loan.” Id. An Assistant Vice President of Defendant from 2005 to 2007 who worked in the Correspondent Lending department stated that when he raised concerns about loan quality, he was essentially told, “‘Shut up, Wall Street will buy it; don’t worry about it.’” Id.
The Second Circuit has not ruled on whether plaintiffs can rely on confidential witnesses cited in another complaint to meet their pleading burden. In re Lehman Bros. Sec. & Erisa Litig., No. 10 Civ. 6637,
This Court will consider the allegations incorporated from the Cambridge Place complaint. “It is not the burden of the [P]lantiff[ ] to show that it is permissible for [it] to quote accounts of confidential sources from a separate proceeding; rather, it is [Defendant’s] burden to show that Plaintiff[ ] may not do so.” 380544 Canada, Inc.,
The complaint here states that the confidential witness statements were included “on information and belief in their truth and on reasonable belief that further inquiry and discovery from [Defendant and others will provide evidence of [their] truth.” Am. Compl. ¶36. And, the confidential witness statements are buttressed by allegations of bad appraisals in the specific loans at issue. See id. at ¶ 40; Am. Compl. Ex. A. Additionally, the statements contain their own indicia of reliability. The quotes are from a number of different employees (not from one possible disgruntled or vindictive employee), who worked in different geographic areas and in different positions throughout the company.
Because the complaint’s pleadings are adequate, the Court will turn to the issue of whether the allegations in the complaint constitute breach under the Purchase Agreement.
II. First Cause of Action — Breach of Representations and Warranties
Because the Court has already decided to consider the Trustee Schedule of 96 loans and the supporting materials attached to the complaint, Defendant’s motion to dismiss the complaint in its entirety is impracticable. In the complaint, Plaintiff discussed only five of the 96 loans from the Trustee Schedule, leading Defendant to argue that “Plaintiff attempts to impute to the 96 loans ... breaches of representations based on five loans identified in the Amended Complaint.” Def.
The Court will address the issues raised by Defendant in turn.
A. Verification Guidelines
Plaintiff alleges that Defendant breached guidelines requiring Defendant to verify the accuracy of the borrower’s income, employment, and existing debt obligations. Defendant’s underwriting guidelines require “a reasonable determination of an applicant’s ability to repay the loan.” Id. “Such determination is based on a review of the applicant’s source of income, calculation of a debt service-to-ineome ratio based on the amount of income from sources indicated on the loan application or similar documentation, a review of the applicant’s credit history and the type and intended use of the property being financed.” Id. For stated income loans, the underwriting guidelines require the underwriter to ensure that the stated income is “reasonably based on factors including ... income source, employment position, and/or ... credit profile.” Otero Deck Ex. I, at 4-1. Defendant argues that Plaintiffs claims fail because Plaintiff applies the wrong or nonexistent guidelines. Resorting to sophistry, Defendant contends that because the guidelines say nothing about the specific allegations which support Plaintiffs claims, no guidelines have been breached. For example, Defendant argues that there are no guidelines which require loan files to contain employment verification or income documentation (thus, loans missing those documents are not in breach). However, in so arguing, Defendant ignores the guidelines’ umbrella mandate of reasonableness under which Plaintiffs allegations fall. The absence of such documentation from the loan file supports a plausible inference that the underwriter failed to reasonably determine the
Defendant’s other arguments along the same lines are similarly unavailing. Defendant states that an application from a borrower who claims to be self-employed, but receives his income from another employer does not violate any guidelines. Defendant argues that there is nothing fishy about the loan — the self-employed borrower could have been working as an “independent contractor at the time, which would be consistent with the borrower’s stated position as ‘self-employed.’” Def. Mem. 15. However, at the motion to dismiss stage, the Court must view the facts in the light most favorable to the non-moving party and cannot blindly accept Defendant’s hypothetical. Likewise, on a different loan, Defendant argues no representation was breached when the underwriter allegedly ignored nine credit inquires listed on the origination report because the guidelines do not require an underwriter to assess a borrower’s potential pending liabilities. However, Defendants cannot be heard to say that a borrower’s potential pending liabilities have no effect on his “ability to repay the loan” — a reasonable determination the underwriter is required to make, pursuant to the guidelines. Stern Deck Ex. 6.
Defendant’s motion to dismiss Plaintiffs verification-related breach of contract claims is DENIED.
B. Appmisals/LTV Ratios
Defendant advances several theories why Plaintiff is unable to demonstrate breach regarding appraisals and/or LTV ratios. The Court will address each in turn,
i. Did Defendant Represent the Accuracy of Appraisal Values?
The Purchase Agreement represents that “[t]he information set forth on each Schedule is true and correct in all material respects as of the Cut-off Date or such other date as may be indicated in such schedule.” Purchase Agreement § 3.01(a)(4), Stern Deck Ex. 2, at 7. Plaintiff argues that “Schedule” refers to the Mortgage Loan Schedule, which contains appraisal values and LTV ratios, and thus the provision represents that “the mortgaged property’s appraised value, and loan-to-value ratios, among other information” are true and correct. Am. Comph ¶ 13. Defendant, on the other hand, contends that “Schedule” refers to the schedules attached to the PSA in Exhibit D, which contain no appraisal values or LTV ratios. Def. Reply Mem. 2. Thus, allegations of inaccurate appraisals or incorrect LTV ratios do not constitute breach.
A written contract must be interpreted according to the parties’ intent, which is “derived from the plain meaning of the language employed in the agreements.” In re Lehman Bros. Inc.,
Where a contract’s language is clear and unambiguous, a court may dismiss a breach of contract claim on a Rule 12(b)(6) motion to dismiss. See Rounds v. Beacon Assocs. Mgmt. Corp., No. 09 Civ. 6910,
Here, the contract is ambiguous as to whether the word “Schedule” in § 3.01(a)(4) refers to the Mortgage Loan Schedule, which contains appraisal and LTV data, or the schedules attached to the PSA in Exhibit D, which do not. Defendant argues that “Schedule” as defined by § 2.02 of the Purchase Agreement is a list of mortgage loans containing the loans’ account numbers and principal balances.
Section 2.02 only sets forth Defendant’s obligation to deliver information, and delineates where the information will appear and how the information will be labeled (as “Schedules I-X”). Stern Deck Ex. 2, at 3-4. However, the mere fact that a different set of information is labeled “Schedules” creates the possibility that ambiguity could exist (because “Schedule” can plausibly mean more than one thing). And, Defendant’s second argument establishes that ambiguity exists regarding which “Schedule” § 3.01(a)(4) refers to. Other representations listed in § 3.01(a) refer specifically to the “Mortgage Loan Schedule,” not just “Schedule.” See, e.g., Purchase Agreement § 3.01(a)(12), Stern Deck Ex. 2, at 8-9 (“as set forth in the Schedule of Mortgage Loans”); Purchase Agreement § 3.01(a)(55), Stern Deck Ex. 2, at 14 (“unless otherwise specifically disclosed in the Mortgage Loan Schedule”). Defendant argues that the reference to “Schedule,” and not “Mortgage Loan Schedule” in § 3.01(a)(4) is deliberate, because when the contracting parties wanted to refer to the Mortgage Loan Schedule, they did so expressly. Although it is true that use of two different terms in the same provision can give rise to an inference that different meanings should be assigned to each term, see Ethicon Endo-Surgery, Inc. v. U.S. Surgical Corp.,
ii. Are the Appraisals Nonr-Actionable Opinions?
In the alternative, Defendant argues that assertions of inflated appraisals do not render false Defendant’s representations concerning the original appraisal values of the loans at issue because appraisals are nonaetionable opinions. Appraisals are indeed statements of opinion. Employees’ Ret. Sys. of the Gov’t of the Virgin Islands v. J.P. Morgan Chase & Co.,
Here, the complaint alleges that “the appraised values of the properties used by [Defendant] in calculating [LTV and CLTV] ratios were inflated.” Am. Compl. ¶ 33. By way of example, Plaintiff states that Loan No. XXXXX7167 had an appraised value of $182,000 in June 2006, but the true purchase price of the property in November 2005 was $119,700. Id. at ¶ 40. Although the sample is smaller than in Chase or UBS, a large disparity between the true purchase price and the appraised value makes plausible Plaintiffs claim that appraised values were “objectively false,” as it seems unlikely a property’s value would appreciate 52% in just seven months. Plaintiff has also sufficiently pleaded subjective falsity. See Am. Compl. ¶ 36 (‘With respect to artificially inflated appraisals, [Confidential Witness # 52] stated that ‘[o]f course they inflated values’ and that if an underwriter questioned the appraised value, the account executive and branch manager would override the underwriter’s objection, as with any other red flag in a loan file”); id. (“[A] staff review appraiser for [Defendant] ... stated that the appraisals ‘were all bad.’ He considered the appraisals borderline fraudulent, not merely incompetent, but was unable to prevent loans based on the flawed appraisals.”).
Thus, Defendant’s motion to dismiss Plaintiffs appraisal-related breach of contract claims is DENIED.
C. Mortgage Note Representation
Section 3.01(a)(16) of the Purchase Agreement represents that “[t]here is no material default, breach, violation or event of
Thus, Defendant’s motion to dismiss Plaintiffs breach of contract claims under § 3.01(a)(16) is GRANTED.
D. Material Adverse Effect
A breach by Defendant must materially and adversely affect the value of a loan or materially and adversely affect the interests of the Trust and its certificate holders in the loan to activate Defendant’s obligation to cure or repurchase the loan. See Purchase Agreement § 3.04, Stern Decl. Ex. 2. The complaint alleges that Defendant represented that “the loans met credit quality standards that indicated that borrowers would be able to repay their loans,” and therefore alleged breaches have “a material and adverse effect on the value of the loans and the interests of the Certificateholders in the loans” by creating an increased credit risk. Id. at ¶ 15. Defendant argues that to prove that a breach “materially and adversely affects the value” of the mortgage loan, Plaintiff must prove that a particular loan defaulted. Def. Sur-reply Mem. 1. Defendant is incorrect. See Syncora Guarantee Inc. v. EMC Mortg. Corp.,
Accordingly, Defendant’s motion to dismiss Plaintiffs first cause of action is GRANTED, only to the extent that the mortgage note representation claims are dismissed.
III. Second Cause of Action — Breach of the Duty to Cure or Repurchase
Plaintiff also brings a claim of breach of the duty to cure or repurchase, arguing that Defendant breached an independent obligation to repurchase defective loans under § 3.04 of the Purchase Agreement. Am. Compl. ¶¶ 53-55. Defendant argues that the claim fails as a matter of law because the repurchase provision is merely a remedy for the breach of a § 3.01 representation, not a separate promise that can give rise to an independent cause of action. See Nomura Asset Acceptance Corp. Alt. Loan Trust, Series 2005-S4 ex rel. HSBC Bank USA, Nat. Ass’n v. Nomura Credit & Capital, Inc., No. 653541/2011,
Accordingly, Defendant’s motion to dismiss Plaintiffs second cause of action is GRANTED.
IV. Third Cause of Action — Indemnification
In its third cause of action, Plaintiff seeks indemnification for its losses, costs, fees, and expenses arising out of and related to the breaches of Defendant’s representations and warranties (namely, the costs incurred in bringing the current litigation). Am. Compl. ¶¶ 57, 58. Section 5.01(e) of the Purchase Agreement contains an indemnification provision, which provides that Defendant will indemnify and hold harmless the Purchaser, the Trustee, and the certificate holders for “legal fees and related costs ... arising from a breach by the Originator of its representations and warranties in Section 3.01 and 3.02 of this Agreement.” Stern Deck Ex. 2, at 26.
Because promises in a contract to indemnify the other party’s attorney’s fees and related costs “run against the grain of the accepted policy that parties are responsible for their own attorneys’ fees,” Oscar Grass & Son, Inc. v. Hollander,
Plaintiff argues that the Purchase Agreement unequivocally extends indemnity to claims between the parties because § 3.04, the remedies provision, provides that Defendant’s obligation to “cure, repurchase and substitute for a defective Mortgage Loan and to indemnify the Purchaser as provided in Section 5.01 constitute the sole remedies of
As in Hooper, the indemnification provision contains clauses which unmistakably relate to third-party claims. Section 5.01(c) requires prompt notice and provides the indemnifying party the right to substitute counsel. Stern Decl. Ex. 2, at 24. Defendant argues that these provisions requiring notice of third-party claims and assumption of the defense against third-party claims would make little sense if indemnification was intended for claims between parties to the indemnity. See Hooper,
In Promuto, the court stated that because the notice requirement and assumption of defense provisions expressly mentioned third-party claims, the rationale of Hooper did not apply. Promuto,
Lastly, Plaintiff argues that courts have found that contracts with similar indemnification provisions to the ones at issue here unequivocally cover claims between contracting parties, citing E*TRADE Fin. Corp. v. Deutsche Bank AG,
Because the Purchase Agreement is not “unmistakably clear” that the indemnification provision covers claims between the contracting parties, Defendant’s motion to dismiss Plaintiffs third cause of action is GRANTED.
CONCLUSION
For the reasons stated above, Defendant’s motion to dismiss is GRANTED in part and DENIED in part.
SO ORDERED.
Notes
. LTV ratios reflect the amount of equity the borrower has in the property when he or she takes out a mortgage. For example, an 80% LTV means that the mortgage equals 80% of the property’s value, and the borrower’s equity is 20%. Id. at ¶ 33.
. CLTV ratios include all of the liens on the mortgaged property. Id.
. The complaint alleges that Defendant breached "with respect to certain loans that are no longer in the Trust, of which many were liquidated with heavy losses to the Trust when borrowers were unable to make their mortgage payments. These losses would have been avoided in many cases had [Defendant] adhered to the underwriting guidelines it represented that it had followed, or truthfully described the nature of these loans.” Am. Compl. V51. "If [Defendant] cannot cure the breach, it is obliged to repurchase the loan if required to do so. The [PSA] defines the 'Purchase Price' at which [Defendant] must repurchase the loan. For breaches related to a mortgage loan already sold from the Trust (typically as a result of foreclosure), [Defendant] must pay the difference between the Purchase Price as calculated immediately prior to the liquidation and any liquidation proceeds.” Id. at ¶¶ 16, 17 (citation omitted).
. In its current form, Rule 9(b) provides: "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). The language, "all averments of fraud,” was dropped by dle 2007 amendment; however, the change was "intended to be stylistic only." Fed.R.Civ.P. 9(b), Advisory Committee Notes, 2007 Amendment.
. The confidential sources have been "described in the complaint with sufficient particularity to support the probability that a person in that position occupied by the source would possess the information alleged.” Novak v. Kasaks,
. FICO scores are a widely used metric of creditworthiness, created by Fair, Isaac, and Company, that assess the likelihood that a person will pay his or her debts. FICO scores range from 300 to 850. Higher scores indicate lower credit risk.
. Note: This is not an instance where Plaintiff is arguing that the LTV ratio is above guidelines because the appraisal was inflated. Plaintiff is simply taking the LTV ratio as is (85%) and demonstrating that it does not comport with the guidelines (regardless of whether the appraisal was accurate).
. Section 2.02 of the Purchase Agreement states: "In connection [with the transfer of loans provided for in the Purchase Agreement], the Originator further agrees ... to deliver to the Purchaser and the Trustee a computer file containing a true and complete list of all such Mortgage Loans specifying for each such Mortgage Loan, as of the Cut-off Date (i) its account number and (ii) the Cut-off Date Principal Balance. Such files, which form a part of Exhibit D to the Pooling and Servicing Agreement, shall also be marked as Schedules I-X to this Agreement and are hereby incorporated into and made a part of this Agreement.”
. Section 5.01(a) provides that the Originator agrees to indemnify the Purchaser for "any and all losses, claims, damages, or liabilities” that "arise out of or are based upon” material misstatements or omissions of the Originator in the Prospectus Supplement, on any computer tape furnished to the Trustee, or in any other marketing material. Stern Decl. Ex. 2, at 23. Section 5.01(e) provides that the Originator agrees to indemnify the Purchaser, the Trustee, and the certificate holders against "any and all claims, losses, penalties, fines, forfeitures, legal fees and related costs, judgments, and any other costs, fees and expenses” that they "may sustain in any way (i) related to the failure of the Originator to perform its duties in compliance with the terms of this Agreement, (ii) arising from a breach by the Originator of its representations and warranties in Section 3.01 and 3.02 of this Agreement or (iii) related to the origination or prior servicing of the Mortgage Loans by reason of any acts, omissions, or alleged acts or omission of the Originator, the related Seller or any servicer.” Id. at 26.