Ambac Assurance Corp. v. U.S. Bank Nat'l Assoc. ( 2021 )

21-70-cv
Ambac Assurance Corp. v. U.S. Bank Nat’l Assoc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY
ORDER FILED ON OR AFTER JANUARY 1, 2007 IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF
APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER
IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY
ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York,
on the 20th day of December, two thousand twenty-one.
PRESENT:
GERARD E. LYNCH,
JOSEPH F. BIANCO,
STEVEN J. MENASHI,
Circuit Judges.
_____________________________________
Ambac Assurance Corporation,
Plaintiff-Appellant,
v. 21-70-cv
U.S. Bank National Association,
Defendant-Appellee. 1
_____________________________________
FOR PLAINTIFF-APPELLANT: HARRY SANDICK (Peter W. Tomlinson,
Henry J. Ricardo, Stephanie Teplin, Leigh
E. Barnwell, on the brief), Patterson
Belknap Webb & Tyler LLP, New York,
NY.
FOR DEFENDANT-APPELLEE: DANIELLE L. ROSE (Kelly J. Spatola,
Melanie L. Oxhorn, on the brief), Kobre &
Kim LLP, New York, NY.
1
The Clerk of the Court is respectfully instructed to amend the caption as set forth above.
Appeal from an order and judgment of the United States District Court for the Southern
District of New York (Schofield, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the order and judgment of the district court are AFFIRMED.
Plaintiff-Appellant Ambac Assurance Corporation (“Ambac”) appeals from the district
court’s December 22, 2020 order and judgment, granting Defendant-Appellee U.S. Bank National
Association’s (“U.S. Bank”) motion for summary judgment pursuant to Federal Rule of Civil
Procedure 56, and motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and
12(b)(6). 2 Specifically, Ambac argues that the district court erred by: (1) determining that
Ambac had only a singular right to repayment under the Pooling Agreement dated August 1, 2005
(the “Agreement”); and (2) dismissing Ambac’s declaratory judgment claim regarding the proper
distribution method for future recoveries. We assume the parties’ familiarity with the underlying
facts, the procedural history, and the issues on appeal, which we reference only as necessary to
explain our decision to affirm.
I. Ambac’s Right to Repayment
This is a contract interpretation case concerning U.S. Bank’s duties as Trustee of the
Harborview Mortgage Loan Trust 2005–10 (the “Trust”), a residential mortgage-backed securities
(“RMBS”) trust backed by loans originated by Countrywide Home Loans, Inc. (“Countrywide”).
2
Ambac appeals from the December 22, 2020 final judgment entered in this case and “from all orders,
opinions, decisions, and rulings underlying it.” ECF No. 1. The December 22, 2020 final judgment was
entered upon stipulation of both parties and referenced the district court’s July 16, 2019 Opinion and Order,
which granted U.S. Bank’s motion to dismiss, as well as the district court’s December 7, 2020 Opinion and
Order, which resolved the parties’ cross-motions for summary judgment. Summary judgment was entered
in favor of Ambac on two claims, neither of which U.S. Bank appeals.
2
After being formed through the Agreement, the Trust issued multiple classes of certificates to
various holders. Ambac, a financial guaranty insurer, insured the two classes of certificates
relevant to this appeal—namely, Class 1-A1B and Class 2-A1C1 (the “Insured Certificates”)—
pursuant to a Certificate Guarantee Insurance Policy and an Endorsement (together, the “Policy”),
effective August 31, 2005. Both the Agreement and Policy are governed by New York law.
The certificates grant the holders the “rights to the cashflow generated by the payments
made by borrowers of the mortgage loans.” Joint App’x at 20–21. Each certificate class
receives funds in a different distribution priority laid out in Section 5.01 of the Agreement (the
“Waterfall Provision”). Distributions to the senior classes of certificates are prioritized over
distributions to the subordinate classes. As set forth in Section 5.03, if the Trust suffers losses,
those losses are allocated first to the subordinate classes and then to the senior classes.
Under the Policy, Ambac agrees, in exchange for premiums, to pay principal and interest
to the Insured Certificates if the Trust suffers cashflow shortfalls. The Policy provides that
Ambac makes claim payments only when the Agreement “transfer[s] to Ambac all rights under
such Insured [Certificates] to receive the principal of and interest on the Insured [Certificates,]”
and further provides that Ambac “shall be subrogated to the rights of each [certificate holder] to
the extent of any payment by [Ambac] under the Policy.” Joint App’x at 326, 330. The
Agreement provides that Ambac “will be entitled to be subrogated to any rights of such [certificate
holder] to receive the amounts for which such Insured Amount was paid, to the extent of such
payment, and will be entitled to receive the Certificate Insurer Reimbursement Amount as set forth
in [the Waterfall Provision].” Joint App’x at 634. The Certificate Insurer Reimbursement
Amount (“CIR Amount”) has a set priority in the Waterfall Provision, which provides that such
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amounts are issued to Ambac after distributions are made to the senior certificate classes, but
before any are made to the subordinate certificate classes.
Neither party disputes that the Agreement provides Ambac with a right to repayment for
the amounts Ambac paid under the Policy. However, the parties dispute what, exactly, that right
of repayment entails. U.S. Bank argues that Ambac is entitled to receive payments only through
the CIR Amount, which it must receive in its delineated waterfall position. In contrast, Ambac
asserts that it has two separate rights to repayment—first, a subrogee’s right to receive the
distributions that the insured certificate holders would receive at the holders’ position in the
waterfall, and second, the right to receive the CIR Amount at Ambac’s position in the waterfall as
insurer. The district court granted summary judgment in U.S. Bank’s favor, holding that the
Agreement provided Ambac with only a single right to repayment through the CIR Amount. This
appeal followed.
We review de novo the grant of a motion for summary judgment, “drawing all reasonable
factual inferences in favor of the party against which summary judgment is sought.” Law
Debenture Tr. Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458, 468 (2d Cir. 2010). Summary
judgment is appropriate where “the movant shows that there is no genuine dispute as to any
material fact and . . . is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). Under
New York law, which governs the Agreement, the threshold question on a motion for summary
judgment “with respect to a contract claim is whether the contract is unambiguous with respect to
the question disputed by the parties.” Law Debenture Tr. Co., 595 F.3d at 465 (internal quotation
marks omitted). A contract is unambiguous “where the contract language has a definite and
precise meaning, unattended by danger of misconception in the purport of the contract itself, and
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concerning which there is no reasonable basis for a difference of opinion.” Id. at 467 (internal
alterations and quotation marks omitted). “[A]mbiguity does not exist simply because the parties
urge different interpretations.” Hugo Boss Fashions, Inc. v. Fed. Ins. Co., 252 F.3d 608, 616 (2d
Cir. 2001) (internal quotation marks omitted). Instead, when the meaning of a particular
provision is disputed, “the task of the court is to determine whether such clauses are ambiguous
when read in the context of the entire agreement.” Law Debenture Tr. Co., 595 F.3d at 467(internal quotation marks omitted). “We review de novo a district court’s interpretation of the
terms of a contract,” Fireman’s Fund Ins. Co. v. TD Banknorth Ins. Agency Inc., 644 F.3d 166,
169 (2d Cir. 2011), including its determination of whether a contract is ambiguous, Revson v.
Cinque & Cinque, P.C., 221 F.3d 59, 66 (2d Cir. 2000).
“It is axiomatic under New York law . . . that the fundamental objective of contract
interpretation is to give effect to the expressed intentions of the parties.” Lockheed Martin Corp.
v. Retail Holdings, N.V., 639 F.3d 63, 69 (2d Cir. 2011) (internal alterations and quotation marks
omitted). If the contract “as a whole makes clear the parties’ over-all intention, courts examining
isolated provisions should then choose that construction which will carry out the plain purpose and
object of the agreement.” Id. (internal alterations and quotation marks omitted); see
Westmoreland Coal Co. v. Entech, Inc., 794 N.E.2d 667, 670 (N.Y. 2003) (stating contracts should
be read “as a harmonious and integrated whole” and each part should be “interpreted with reference
to the whole . . . to give effect to its general purpose”). Accordingly, “courts may not by
construction add or excise terms, nor distort the meaning of those used and thereby make a new
contract for the parties under the guise of interpreting the writing.” Vt. Teddy Bear Co. v. 538
Madison Realty Co., 807 N.E.2d 876, 879 (N.Y. 2004) (internal quotation marks omitted); see Law
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Debenture Tr. Co., 595 F.3d at 468 (“If the agreement on its face is reasonably susceptible of only
one meaning, a court is not free to alter the contract to reflect its personal notions of fairness and
equity.” (internal alterations and quotation marks omitted)).
Here, after conducting de novo review, as well as reviewing the terms of the contract itself,
we hold that the express terms of the Agreement unambiguously dictate that Ambac has only a
singular right to repayment though the CIR Amount, to be received in its designated waterfall
priority—i.e., after the senior certificate holders but before the junior certificate holders—and
accordingly, conclude that the district court properly granted summary judgment to U.S. Bank.
Our conclusion is supported not only by the plain terms of the individual provisions
outlining Ambac’s right to receive repayment, but also by a reading of the Agreement as an
integrated whole. Section 4.05 of the Agreement, titled “Certificate Insurance Policy,” details
how Ambac (the “Certificate Insurer”) pays insurance proceeds to certificate holders, see
§ 4.05(a)-(c), and, critically, in Subsection (d), grants Ambac subrogation rights and the right to
receive repayment, see § 4.05(d). 3 As the district court correctly determined, this Subsection
provides the mechanism by which that repayment will be made—i.e., via the CIR Amount
3
The relevant portion of § 4.05(d) provides:
The Trustee hereby agrees on behalf of the Holders of the Insured
Certificates. . . for the benefit of the Certificate Insurer that, to the extent
the Certificate Insurer pays any Insured Amount, . . . the Certificate Insurer
will be entitled to be subrogated to any rights of such Holder to receive the
amounts for which such Insured Amount was paid, to the extent of such
payment, and will be entitled to receive the Certificate Insurer
Reimbursement Amount as set forth in [the Waterfall Provision].
Joint App’x at 634.
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according to the terms of the Waterfall Provision, which, in turn, provides that Ambac receives its
reimbursement amount only after the senior certificates receive their distribution. See Joint
App’x at 637–38.
Ambac, however, asserts that the conjunctive “and” in Section 4.05(d) unambiguously
provides Ambac with two, distinct repayment rights, “making clear that Ambac ‘will be entitled’
to receive amounts as subrogee and . . . [as] contractual reimbursement for claims not previously
recovered through subrogation.” Appellant’s Br. at 24–25. We are unpersuaded. As the
district court noted, in the context of the Agreement as a whole, the “and” in Section 4.05(d) does
not necessarily create a separate right but may be merely explanatory. Section 4.05(d) provides
for separate rights in separate sentences; the secondary clause in the subrogation sentence thus
may only limit and explain the third clause rather than add a new, distinct right. At a minimum,
the Agreement does not confer a right of subrogation that would allow Ambac to occupy a different
position in the distribution waterfall. See Kaf-Kaf, Inc. v. Rodless Decorations, Inc., 687 N.E.2d
1330, 1332–33 (N.Y. 1997) (observing that “[s]ubrogation” allows an insurer to “seek
indemnification from third parties whose wrongdoing has caused a loss for which the insurer is
bound to reimburse”).
Other provisions of the Agreement confirm this reading. First, the CIR Amount is defined
as, “[f]or any Distribution Date, . . . all amounts previously paid by the Certificate Insurer. . . for
which the Certificate Insurer has not been reimbursed prior to such Distribution Date.” Joint
App’x at 562 (emphasis added). The phrase “all amounts” confirms that, on each Distribution
Date, Ambac is to be paid exclusively through the CIR Amount and not, as Ambac suggests,
through both the CIR Amount and other distributions as a subrogee. Further, as the district court
7
correctly noted, the word “prior” in this definition “explicitly contemplates that amounts
reimbursed through the waterfall would not occur on the same distribution date . . . . [and] Ambac
necessarily cannot receive some distributions on the same Distribution Date in a more senior
waterfall position.” Special App’x at 29. Ambac’s reading would render this phrase
“superfluous or meaningless,” an interpretation that we “avoid[] if possible.” LaSalle Bank Nat’l
Ass’n v. Nomura Asset Cap. Corp., 424 F.3d 195, 206 (2d Cir. 2005) (internal quotation marks
omitted); see Nomura Home Equity Loan, Inc., Series 2006-FM2, by HSBC Bank USA, Nat’l Ass’n
v. Nomura Credit & Cap., Inc., 92 N.E.3d 743, 748 (N.Y. 2017) (“[A] contract must be construed
in a manner which gives effect to each and every part, so as not to render any provision
meaningless or without force or effect.” (internal quotation marks omitted)).
Moreover, Section 12.03 unambiguously confirms that Ambac only has a single right of
repayment. The provision states: “By accepting its Insured Certificate, each Holder of an
Insured Certificate agrees that . . . the Certificate Insurer shall have the right to exercise all rights
of the Holders of the Insured Certificates under the Agreement (other than the right to receive
distributions on the Insured Certificates).” Joint App’x at 678 (emphasis added). In other
words, rather than granting Ambac a separate right to receive distributions in the Insured
Certificates priority position, the Agreement expressly rejects it. Whatever additional right “to
exercise all rights of the Holders of the Insured Certificates” Ambac may have as a subrogee, it
does not include the right to receive distributions.
Further, the Waterfall Provision refers to the Certificate Insurer only once, when
delineating its distribution position after the senior certificate holders. That provision provides
that payments made to the senior classes are made to “Holder[s]” or “Certificates.” Joint App’x
8
at 637–38. Neither of these classifications includes Ambac, which only obtains the “amounts”
owed to Certificates and does not hold the certificates itself. See Joint App’x at 634. Ambac’s
contrary interpretation—that it should receive the distributions in place of the Insured Certificates
as well as in its Insurer position—requires us to read terms into the Agreement that are not there.
See Vt. Teddy Bear Co., 807 N.E.2d at 879 (“[C]ourts may not by construction add or excise terms,
nor distort the meaning of those used and thereby make a new contract for the parties under the
guise of interpreting the writing.” (internal quotation marks omitted)). Likewise, it is noteworthy
that the word “subrogation” only appears once in the entire Agreement, in Section 4.05(d).
Nowhere in the Agreement’s exhaustive definitions and provisions did the parties include any
definition of a subrogation amount, subrogation rights, or a subrogation payment priority. As we
have explained, “when the negotiated contract is between sophisticated parties . . . , courts should
be extremely reluctant to interpret an agreement as impliedly stating something.” 4 Utica Mut.
Ins. Co. v. Clearwater Ins. Co., 906 F.3d 12, 18 (2d Cir. 2018) (internal quotations omitted);
accord Vt. Teddy Bear Co., 807 N.E.2d at 879. In light of the Agreement’s contractual language,
we decline Ambac’s invitation to imply terms that the parties did not expressly negotiate
themselves.
4
We also agree with the district court that this interpretation is reinforced by the Policy and the Prospectus
Statement, both of which the district court properly considered in its analysis. See TVT Records v. Island
Def Jam Music Grp., 412 F.3d 82, 89 (2d Cir. 2005) (“Under New York law, all writings which form part
of a single transaction and are designed to effectuate the same purpose must be read together.” (internal
alterations and quotation marks omitted)); accord Teletech Eur. B.V. v. Essar Servs. Mauritius, 921
N.Y.S.2d 62, 63 (1st Dep’t 2011) (stating that “for purposes of interpreting contemporaneous agreements
which are part of the same transaction, the instruments should be read together”). We agree that the
Policy’s reference to subrogation is “a limitation and explanation of Ambac’s right to repayment in the
preceding sentence,” Special App’x at 25; see Joint App’x at 326, while the Prospectus Supplement
confirms that Ambac recovers the amounts owed it only after the senior certificate class has been paid, see
Special App’x at 30; Joint App’x at 352.
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Ambac also argues that the district court erred in granting summary judgment because its
interpretation “fail[ed] to give effect to the equitable subrogation principles that underlie all
contracts of insurance.” Appellant’s Br. at 33. We disagree. “Subrogation is the principle by
which an insurer, having paid losses of its insured, is placed in the position of its insured so that it
may recover from the third party legally responsible for the loss.” Winkelmann v. Excelsior Ins.
Co., 650 N.E.2d 841, 843 (N.Y. 1995). Functionally, Ambac’s appeal to equitable subrogation,
as well as its various policy arguments, are nothing more than a request for us to rewrite the clear
terms of the Agreement, which is not permitted under New York law. See Vt. Teddy Bear Co.,
807 N.E.2d at 879. Here, as discussed above, the unambiguous terms of the Agreement outline
Ambac’s singular right to repayment through the CIR Amount, and those terms must govern.
Accordingly, we conclude that the district court properly determined that the Agreement
only granted Ambac a singular right to repayment and properly granted summary judgment in U.S.
Bank’s favor.
II. Declaratory Judgment
Additionally, Ambac argues that the district court erred by dismissing Ambac’s request for
a declaratory judgment interpreting the Agreement as it pertains to future distributions. We
review a district court’s refusal to grant a declaratory judgment for abuse of discretion, Wilton v.
Seven Falls Co., 515 U.S. 277, 289–90 (1995); Grand River Enters. Six Nations, Ltd. v. Boughton,
988 F.3d 114, 127 (2d Cir. 2021), and conclude that the district court did not abuse its discretion
here.
In exercising its discretion over whether to adjudicate a declaratory judgment claim, a
district court must determine “(1) whether the judgment will serve a useful purpose in clarifying
10
or settling the legal issues involved and (2) whether a judgment would finalize the controversy and
offer relief from uncertainty.” Niagara Mohawk Power Corp. v. Hudson River-Black River
Regulating Dist., 673 F.3d 84, 105 (2d Cir. 2012) (internal quotation marks omitted).
Here, no useful purpose would be served by granting Ambac declaratory relief as Ambac’s
declaratory judgment claim is duplicative of its breach of contract claim. Although Ambac
concedes this point as to past distributions, it still asserts that declaratory relief is necessary as to
future distributions. We are unpersuaded. The issues on which Ambac seeks declaratory
relief—namely, how U.S. Bank must calculate and write up the Class Certificate Principal Balance
—necessarily had to be decided in the resolution of the breach of contract claims the district court
allowed to go forward and that were predominately decided in Ambac’s favor in its cross-motion
for summary judgment. Ambac’s argument that a declaratory judgment is still needed is thus
primarily predicated on its assumption that, without a declaratory judgment, U.S. Bank will
continue to “misappl[y] recoveries” and force Ambac to “return to court each and every month.”
Appellant’s Br. at 50. To the extent that Ambac suggests that U.S. Bank will disregard the district
court’s binding judgment as to how to apply future recoveries (a judgment that U.S. Bank has,
incidentally, not appealed), its concern is merely speculative. Accordingly, we conclude that the
district court did not abuse its discretion in dismissing Ambac’s request for a declaratory
judgment. 5
5
Ambac also argues that the district court made two clear factual errors: (1) determining that future
distributions depended on the results of a state trust instruction proceeding (“TIP”), when U.S. Bank had,
in fact, not committed to seeking instruction on those distributions unless a pending settlement was
approved; and (2) assuming that all future distributions would stem from the TIP settlement, when other
potential sources of distributions were available. Those arguments do not change our analysis. First,
district courts typically act within the bounds of their discretion when they “dismiss declaratory judgment
actions where another suit is pending in a state court presenting the same issues, not governed by federal
11
* * *
We have considered all of Ambac’s remaining arguments and find them to be without
merit. Accordingly, we AFFIRM the order and judgment of the district court.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk of Court
law, between the same parties,” as the district court did here. Niagara Mohawk Power Corp., 673 F.3d at
104 (internal quotation marks omitted). Second, Ambac’s argument still relies upon multiple
hypotheticals—namely, that a settlement would not be approved and that U.S. Bank would not seek
instruction if it were not. Third, even assuming that the district court overestimated the scope of the
pending TIP settlement, it remains the case that, fundamentally, Ambac is attempting to restyle the same
contractual interpretation issue already being decided in this case as a distinct declaratory judgment claim.
We find it unnecessary to adjudicate the same claim twice.
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