Lehman Bros. Holdings, Inc. v. Universal American Mortgage Co.

FILED
United States Court of
UNITED STATES COURT OF APPEALS Appeals
Tenth Circuit
FOR THE TENTH CIRCUIT
_________________________________
January 27, 2016
Elisabeth A. Shumaker
LEHMAN BROTHERS HOLDINGS, Clerk of Court
INC.,
Plaintiff-Appellant,
v. No. 14-1180
(D.C. No. 1:13-CV-00091-REB-KMT)
UNIVERSAL AMERICAN (D. Colo.)
MORTGAGE COMPANY, LLC,
Defendant-Appellee.
––––––––––––––––––––––––––––––
LEHMAN BROTHERS HOLDINGS,
INC.,
Plaintiff-Appellant,
v. No. 14-1181
(D.C. No. 1:13-CV-00088-CMA-MEH)
UNIVERSAL AMERICAN (D. Colo.)
MORTGAGE COMPANY, LLC,
Defendant-Appellee.
––––––––––––––––––––––––––––––
LEHMAN BROTHERS HOLDINGS,
INC.,
Plaintiff-Appellant,
v. No. 14-1182
(D.C. No. 1:13-CV-00093-CMA-MJW)
UNIVERSAL AMERICAN (D. Colo.)
MORTGAGE COMPANY, LLC,
Defendant-Appellee.
––––––––––––––––––––––––––––––
LEHMAN BROTHERS HOLDINGS,
INC.,
Plaintiff-Appellant,
v. No. 14-1212
(D.C. No. 1:13-CV-00087-CMA-MJW)
UNIVERSAL AMERICAN (D. Colo.)
MORTGAGE COMPANY,
Defendant-Appellee.
––––––––––––––––––––––––––––––
LEHMAN BROTHERS HOLDINGS,
INC., LLC,
Plaintiff-Appellant,
v. No. 14-1356
(D.C. No. 1:13-CV-00092-WJM-BNB)
UNIVERSAL AMERICAN (D. Colo.)
MORTGAGE COMPANY, LLC,
Defendant-Appellee.
––––––––––––––––––––––––––––––
AURORA COMMERCIAL CORP.,
as Successor by merger to Aurora
Bank, FSB, f/k/a Lehman Brothers
Bank, FSB,
Plaintiff-Appellant,
No. 14-1475
v. (D.C. No. 1:12-CV-03138-WJM-KLM)
(D. Colo.)
STANDARD PACIFIC
MORTGAGE, INC., a Delaware
2
corporation, f/k/a Family Lending
Services, Inc.,
Defendant-Appellee.
_________________________________
ORDER AND JUDGMENT *
_________________________________
Before BRISCOE, MATHESON, and BACHARACH, Circuit Judges.
_________________________________
This appeal involves fifteen residential mortgages bought by Lehman
Brothers Bank, FSB. This bank, which later changed its name to Aurora
Commercial Corp., conveyed five of the loans to Lehman Brothers
Holdings, Inc. and retained the other ten. Aurora and Lehman Holdings
sued, 1 claiming that the sellers had breached warranties about the quality
of the loans.
The overarching issue in this consolidated appeal involves
timeliness. In our view, the suits are untimely under the statute of
limitations. Timeliness turns on three sub-issues:
*
This order and judgment does not constitute binding precedent,
except under the doctrines of law of the case, res judicata, and collateral
estoppel. But this order and judgment may be cited if otherwise appropriate
under Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
1
Lehman Holdings and Aurora filed suit in the District of Colorado,
alleging that a substantial part of the underlying events took place in
Colorado. Lehman Holdings stated that its residential mortgage loss
recovery program is based in Colorado, and Aurora stated that the
agreements were to be performed in Colorado and the loans were serviced
there.
3
1. Does New York’s borrowing clause apply? (Yes) New York’s
borrowing clause applies if the parties agreed to use New York
law, the claimant did not reside in New York, and the claim
accrued outside of New York. In our view, the borrowing
clause applies because the agreements effectively call for
application of the borrowing clause, Lehman Bank is
considered a resident of Delaware, and Lehman Bank’s injury
was suffered in Delaware. Under the borrowing clause, we must
apply Delaware’s period of limitations, which is three years
from accrual of the cause of action.
2. Did the claims accrue more than three years before Aurora
and Lehman Holdings sued? (Yes) Because the Delaware
limitations period is three years, we must decide if the claims
accrued more than three years before Aurora and Lehman
Holdings sued. We conclude they did. All the claims accrued in
2006 and 2007 (when Lehman Bank bought the fifteen loans)
even though (1) Lehman Holdings and Aurora later demanded
that the sellers cure the losses sustained from the loans and (2)
Lehman Holdings had to reimburse third parties because of the
loan defects. Though the claims accrued in 2006 and 2007,
Aurora and Lehman Holdings waited until 2011 and 2012 to sue
on the fifteen loans. Thus, the suits would ordinarily be time-
barred.
3. Did the seller agree to extend the limitations period from
three years to twenty years? (No) Aurora argues that the
seller agreed to extend the limitations period to twenty years.
We reject this argument. Delaware law permits the parties to
agree to extend the limitations period by postponing the accrual
date. But the parties did not agree to postpone the accrual date.
Thus, Aurora’s limitations period was three years, not twenty
years.
I. The Loan Sales and the Lawsuits
All of the claims were brought against two originators of home loans:
Standard Pacific Mortgage, Inc. and Universal American Mortgage
Company, LLC. In 2004, Standard Pacific agreed to sell residential
mortgage loans to Lehman Bank. Similarly, in 2005 and 2006, Universal
4
American agreed to sell residential mortgage loans to Lehman Bank. Each
agreement was memorialized in two documents: a Loan Purchase
Agreement and a Seller’s Guide. The Loan Purchase Agreements
incorporated the Seller’s Guides.
A. Lehman Holdings’ Claims
One of the appellants, Lehman Holdings, appeals from dispositions
on claims involving five loans that Universal American sold in 2006 to
Lehman Bank. Lehman Bank sold the loans and assigned the contractual
rights to Lehman Holdings, which then sold the loans to either the Federal
Home Loan Mortgage Corporation (commonly known as Freddie Mac) or
the Federal National Mortgage Association (commonly known as Fannie
Mae).
Freddie Mac and Fannie Mae eventually determined that the five
loans were unacceptable and demanded payment from Lehman Holdings.
Lehman Holdings complied, then brought five suits in 2011 against
Universal American for breach of contract. In each case, the district court
5
granted summary judgment to Universal American based on expiration of
the period of limitations.
B. Aurora’s Claims
Aurora’s suit is similar. Aurora bought ten loans from Standard
Pacific in 2006 and 2007. (As noted above, Aurora was known at the time
of purchase as Lehman Brothers Bank.) In November 2012, Aurora sued
Standard Pacific for breach of contract. The district court granted Standard
Pacific’s motion to dismiss based on expiration of the limitations period.
II. Standards of Review
This consolidated appeal is from (1) five orders granting summary
judgment to Universal American on the claims by Lehman Holdings and
(2) a single order granting Standard Pacific’s motion to dismiss Aurora’s
claims. In reviewing these orders, we engage in de novo review. See Albers
v. Bd. of Cty. Cmm’rs of Jefferson Cty., Colo., 771 F.3d 697, 700 (10th
Cir. 2014) (motion to dismiss); In re Grandote Country Club Co., Ltd., 252
F.3d 1146, 1149 (10th Cir. 2001) (summary judgment motion).
To survive the motion to dismiss, Aurora had to plead facts sufficient
“to state a ‘claim to relief that is plausible on its face.’” Slater v. A.G.
Edwards & Sons, Inc., 719 F.3d 1190, 1196 (10th Cir. 2013) (quoting
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). In considering the complaint,
we must accept as true all of Aurora’s well-pleaded allegations and
6
construe them in the light most favorable to Aurora. Albers, 771 F.3d at
700.
To survive the motions for summary judgment, Lehman Holdings had
to “come forward with ‘specific facts showing that there [was] a genuine
issue for trial.’” In re Grandote, 252 F.3d at 1150 (quoting Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). We
draw factual inferences in favor of Lehman Holdings as the nonmovant.
See id. at 1149.
III. New York’s borrowing clause applies, subjecting the plaintiffs’
claims to the limitations period of both New York and Delaware.
Universal American and Standard Pacific argue that the parties’
agreements require application of the New York borrowing clause. We
agree. Under the borrowing clause, the plaintiffs had to satisfy the
limitations period in both Delaware and New York.
A. The parties’ agreements call for application of the New
York borrowing clause.
The threshold issue is the applicability of New York’s borrowing
clause. Lehman Holdings and Aurora contend that the borrowing clause
does not apply because the parties declined to select New York’s choice-
of-law rules. In our view, however, the parties’ agreements incorporated
New York’s borrowing clause. Thus, we conclude that the New York
borrowing clause applies.
7
The Loan Purchase Agreements and Seller’s Guides include choice-
of-law provisions in all of the sales to Lehman Bank. The Loan Purchase
Agreements provide:
Governing Law. This Agreement and the Seller’s Guide shall
be construed in accordance with the laws of the State of New
York and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with the laws of
the State of New York, except to the extent preempted by
Federal law.
E.g., Lehman Holdings’ App’x at 26. Similarly, the Seller’s Guides
provide:
GOVERNING LAW
The Loan Purchase Agreement shall be construed in accordance
with the substantive law of the State of New York and the
obligations, rights and remedies of the parties hereunder shall
be determined in accordance with such law without regard for
the principles of conflict of laws.
E.g., id. at 126.
The agreements generally call for application of New York law, and
New York’s statute of limitations would ordinarily give Lehman Holdings
and Aurora six years to sue. N.Y. C.P.L.R. § 213 (McKinney); see State of
New York v. Ehasz, 436 N.Y.S.2d 387, 388-89, 80 A.D.2d 671, 671 (N.Y.
App. Div. 1981). 2 But New York’s statute of limitations contains a
borrowing clause. See N.Y. C.P.L.R. § 202 (McKinney).
2
Because the district court had jurisdiction through diversity of
citizenship, the forum state’s choice of law rules were controlling. Klaxon
Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). The forum state
8
Universal American and Standard Pacific invoke this borrowing
clause, arguing that it would trigger Delaware’s statute of limitations,
which would give Lehman Holdings and Aurora only three years to sue.
See Del. Code Ann. tit. 10, § 8106(a). Lehman Holdings and Aurora
disagree, reading the Seller’s Guides to prohibit application of the
borrowing clause. We agree with Standard Pacific and Universal American:
The Loan Purchase Agreements take precedence over the Seller’s Guides,
and the Loan Purchase Agreements’ choice of law provisions encompass
the borrowing clause.
The Loan Purchase Agreements incorporate the Seller’s Guides, but
state that “[i]n the event of any conflict, inconsistency or discrepancy
between any of the provisions of the Seller’s Guide and any of the
provisions of this [Loan Purchase] Agreement, the provisions of this [Loan
Purchase] Agreement shall control and be binding upon [Lehman Bank]
and the Seller.” E.g., Lehman Holdings’ App’x at 25. Thus, if the Seller’s
Guides and the Loan Purchase Agreements are inconsistent, the Loan
Purchase Agreements would control.
As a result, we are guided by the terms in the Loan Purchase
Agreements. These terms implicitly include selection of New York’s
was Colorado for each suit. Colorado law provides that when a claim is
based on another state’s substantive law, that state’s period of limitations
is controlling. Colo. Rev. Stat. § 13-82-104.
9
limitations period by stating that the “obligations, rights and remedies of
the parties hereunder shall be determined in accordance with the laws of
the State of New York.” E.g., id. at 26. This language includes New York’s
limitations period because the length of time to sue is something that
affects the parties’ “rights and remedies.” See Tanges v. Heidelberg N.
Am., Inc., 710 N.E.2d 250, 253 (N.Y. 1999) (stating that New York’s
statutes of limitations suspend the remedy rather than affect the underlying
right). Thus, when the parties chose New York’s law on remedies, their
choice effectively included New York’s period of limitations, which in
turn included New York’s borrowing clause. See Muto v. CBS Corp., 668
F.3d 53, 58 (2d Cir. 2011) (“[T]he presumption is strong that federal courts
should apply state statutes of limitations, including their borrowing
statutes, as integrated wholes.”).
Lehman Holdings and Aurora disagree, pointing out that the Seller’s
Guides state that the parties’ obligations, rights and remedies shall be
governed by New York’s “substantive law . . . without regard for the
principles of conflict of laws.” E.g., Lehman Holdings’ App’x at 126. In
the view of Lehman Holdings and Aurora, the Seller’s Guides’ reference to
New York’s “substantive law” excludes the borrowing clause. If that is
true, however, we would need to disregard the Seller’s Guides because the
Loan Purchase Agreements state that they would control “[i]n the event of
10
any conflict” with the Seller’s Guides. E.g., id. at 25. 3 And the Loan
Purchase Agreements select New York law without the conflict-of-laws
limitation. As a result, the Loan Purchase Agreements require application
of the borrowing clause. 4
B. The borrowing clause requires application of the limitations
periods of both New York and Delaware.
Because the borrowing clause applies, we must decide whether to
apply the limitations period for (1) New York or (2) both New York and
Delaware. Lehman Holdings and Aurora argue that the borrowing clause
requires application of New York’s limitations period; Universal American
and Standard Pacific argue that the borrowing clause requires application
of both limitations periods, effectively requiring adherence to Delaware’s
shorter period of limitations. We agree with Universal American and
Standard Pacific.
3
Universal American and Standard Pacific argue that the Seller’s
Guides are consistent in supporting application of New York’s borrowing
clause. We need not address this argument. For the sake of argument, we
assume that Lehman Holdings and Aurora are correct in their interpretation
of the Seller’s Guides. Even with this assumption, we would need to apply
New York’s borrowing clause.
4
Lehman Holdings and Aurora argue that (1) New York’s borrowing
clause is designed to prevent forum shopping by nonresidents suing in New
York and (2) forum shopping is not involved here. But we are constrained
by the unambiguous language in the Loan Purchase Agreements. See R/S
Assocs. v. New York Job Dev. Auth., 771 N.E.2d 240, 242-43 (N.Y. 2002).
11
1. We apply Delaware’s statute of limitations, as well as New
York’s, if two conditions are met.
New York’s borrowing clause requires application of the statute of
limitations in both New York and another state if two conditions are met:
1. The plaintiff was not a resident of New York when the cause of
action accrued.
2. The cause of action accrued in a state other than New York.
N.Y. C.P.L.R. § 202 (McKinney). In our view, both conditions are satisfied
as a matter of law, requiring us to apply the shorter of the limitations
periods in Delaware and New York.
2. Lehman Bank (Aurora) is the entity whose residency we
must consider.
Before we can address the first condition, which involves residency,
we must decide whose residency to consider. In our view, the claims
brought by both Aurora and Lehman Holdings turn on the residency of
Lehman Bank (now Aurora).
For Aurora’s claims, the answer is simple. Aurora never assigned any
of the ten loans that are the subject of its suit. Thus, the residency of
Lehman Bank controls for Aurora’s claims.
Lehman Bank’s residency also controls for the claims brought by
Lehman Holdings. Lehman Holdings argues that in four of the five district
court cases, the court should have focused on Lehman Holdings’ residency
12
rather than Lehman Bank’s. 5 We disagree because Lehman Holdings cannot
acquire greater rights than its assignor (Lehman Bank). Instead, as an
assignee, Lehman Holdings steps into the shoes of its assignor, Lehman
Bank. U.S. Bank Nat’l Ass’n v. Denisco, 949 N.Y.S.2d 309, 312, 96 A.D.2d
1659, 1661 (N.Y. App. Div. 2012). As a result, the issue is which state’s
limitations period would apply if the claim had been brought by Lehman
Bank rather than Lehman Holdings. To answer that question, we must
determine where Lehman Bank “resided” when it bought and resold the
loans.
Lehman Holdings insists that its own residency is controlling,
pointing out that Lehman Holdings assumed all of the rights and remedies
previously conveyed to Lehman Bank. On this basis, Lehman Holdings
argues that it was injured by Universal American’s alleged breach,
allowing Lehman Holdings to sue on its own as purchaser (and not merely
as assignee) of the agreements.
This argument is invalid. The breaches of the contractual
representations and warranties occurred when they were owed to Lehman
Bank, not Lehman Holdings. It was not until 2011, years after the losses
were allegedly sustained, that any of the contractual rights were assigned
5
In the fifth district court case (No. 13-cv-91), Lehman Holdings
conceded that the court should focus on the state of Lehman Bank’s
residence. Thus, Lehman Holdings does not challenge the district court’s
focus on Lehman Bank’s residence in No. 13-cv-91.
13
to Lehman Holdings. Thus, when the causes of action accrued, the alleged
victim would have been Lehman Bank, not Lehman Holdings. See ACE
Secs. Corp. v. DB Structured Prods., Inc., 25 N.Y.3d 581, 596-97 (2015)
(holding that a breach of a representation or warranty occurs at the time of
contract execution, regardless of any subsequent failure to observe
contractual terms requiring repurchase or cure of that breach); Cent.
Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, No. 5140-CS,
2012 WL 3201139, at *6, *17 (Del. Ch. Aug. 7, 2012) (unpublished)
(same). Lehman Holdings can sue only as an assignee.
Lehman Holdings disagrees, characterizing itself as an assignee of
the entire agreement, allowing it to sue Universal American in its own
shoes rather than in the shoes of Lehman Bank. This characterization rests
on semantics rather than substance. Lehman Holdings acquired its interests
from Lehman Bank, but Lehman Holdings is not suing for breaches
committed after it acquired the loans. Instead, Lehman Holdings is suing
for breaches allegedly committed against Lehman Bank, the assignor. The
alleged breaches preceded Lehman Holdings’ acquisition of any contract
rights.
In these circumstances, Lehman Holdings can assert claims only as
the assignee of rights conveyed by Lehman Bank. Thus, Lehman Holdings
cannot “stand in a better position than that of” Lehman Bank. Portfolio
Recovery Assocs., LLC v. King, 14 N.Y.3d 410, 416 (N.Y. 2010); see
14
Restatement (Second) of Contracts § 336 (1981) (“By an assignment the
assignee acquires a right against the obligor only to the extent that the
obligor is under a duty to the assignor.”).
For these reasons, we must focus on the residency of Lehman Bank
for all of the claims.
3. Lehman Bank was a Delaware resident.
Under the first condition of the New York borrowing clause, we must
determine Lehman Bank’s residency when the cause of action accrued.
New York law defines residency based on the entity’s principal place of
business. Lehman Bank was a federal savings and loan association at the
time of the transactions; and under federal law, a federal savings and loan
association’s home office ordinarily constitutes the principal place of
business. Because Lehman Bank’s home office was in Delaware, Lehman
Bank’s principal place of business was (by definition) also in Delaware.
Thus, Lehman Bank’s residency was in Delaware when it bought and resold
the loans.
a. Under New York law, Lehman Bank’s residency was in
Delaware.
The New York borrowing clause requires us to determine whether
“the cause of action accrued in favor of a [New York] resident.” N.Y.
C.P.L.R. § 202 (McKinney). Lehman Holdings and Aurora acknowledge
that in determining Lehman Bank’s residency, we focus on its principal
15
place of business. See Lehman Holdings’ Opening Br. at 22; Lehman
Holdings’ Reply Br. at 26-27; Aurora’s Opening Br. at 10-13; see also
Groshut v. Kinetophote Corp., 157 N.Y.S. 312, 314 (N.Y. App. Div. 1916)
(concluding that a domestic corporation resides, for purposes of the New
York Civil Procedure Rule § 2458, where the corporation has its principal
place of business). Thus, to determine Lehman Bank’s residency when the
loans were sold, we must determine where Lehman Bank had its principal
place of business.
Lehman Bank was a federal savings and loan association, which is a
creature of federal law. See Home Owners’ Loan Act, 12 U.S.C. §§ 1461-
70 (providing for the establishment of federally chartered savings and loan
associations). Based on federal law, a federal agency established
comprehensive regulations governing federal savings and loan associations
like Lehman Bank. See Fid. Fed. Sav. & Loan Ass’n v. de la Cuesta, 458
U.S. 141, 144-45 (1982) (stating that the Federal Home Loan Bank Board
has promulgated “regulations governing ‘the powers and operations of
every Federal savings and loan association from its cradle to its corporate
grave’” (quoting People v. Coast Fed. Sav. & Loan Ass’n, 98 F. Supp. 311,
316 (S.D. Cal. 1951))).
New York law provides no clear standard for determining the
principal place of business of a federal savings and loan association. In
other contexts, however, New York courts have addressed provisions of
16
New York law that mirror terms also used by federal law. In those
contexts, New York courts have defined the state-law terms in accordance
with the parallel provisions of federal law. See Delese v. Tax Appeals
Tribunal of N.Y., 771 N.Y.S.2d 191, 194, 3 A.D.3d 612, 613 (N.Y. App.
Div. 2004) (“The Department’s use of federal regulations to interpret a
state statute based on federal law was proper.”); People v. Huggins, 541
N.Y.S.2d 1016, 1020 (N.Y. Sup. Ct. 1989) (adopting a federal definition of
a parallel term in state evidentiary law).
In our view, New York would do the same here. New York uses a
term, “principal place of business,” that also exists in federal law. Here,
the issue involves the principal place of business for a federally created
entity, a federal savings and loan association. New York courts would
likely rely on federal law to define the principal place of business of a
federally created entity.
Federal regulatory law provides useful guidance, indicating that the
principal place of business is where the savings and loan association
establishes its home office. Under federal regulations, a savings and loan
association’s home office takes on legal significance: All of the savings
and loan association’s operations “are subject to direction from the home
office.” 12 C.F.R. § 545.91(a). As a result, federal regulations ordinarily
define the bank’s home office as its principal place of business. See 12
17
C.F.R. § 1263.18(b) (creating a default rule designating the home office as
the principal place of business). 6
In district court and on appeal, Lehman Holdings and Aurora
admitted that Lehman Bank’s home office had been in Delaware when the
loans were bought and resold. Lehman Holdings’ App’x at 782, 1492,
2107, 3062, 3733; Aurora’s App’x at 11; Aurora’s Opening Br. at 11;
Lehman Holdings’ Opening Br. at 23. Because Lehman Bank’s home office
was in Delaware, Lehman Bank’s principal place of business also had to be
in Delaware.
It is true that we are construing the phrase “principal place of
business” under New York law, not federal law. Invoking New York law,
Lehman Holdings argues that a fact issue exists, pointing to evidence that
most of Lehman Bank’s executive officers were in New York and that the
board of directors met most frequently in New York. In other
circumstances, the location of the principal place of business might raise a
fact issue under New York law. But for federally chartered savings and
loan associations, the term “principal place of business” is a term of art
heavily influenced by federal regulations. See Lehman Bros. Bank, FSB v.
State Bank Comm’r, 937 A.2d 95, 103 (Del. 2007) (holding that even
though Lehman Bank’s executive officers were in New York and its board
6
This provision has been renumbered. When the loans were sold, this
provision appeared as 12 C.F.R. § 925.18(b).
18
of directors met exclusively in New York, Lehman Bank had its “principal
office” in Delaware rather than New York because the term “principal
office” is a term of art); accord Cortes v. Am. Airlines, Inc., 177 F.3d
1272, 1298 (11th Cir. 1999) (referring to the “principal place of business”
as a “term of art”).
Regardless of where Lehman Bank’s executives resided or met, all of
Lehman Bank’s actions were “subject to direction from the home office” in
Delaware. 12 C.F.R. § 545.91(a). With all of the bank’s actions subject to
direction from the home office in Delaware, any reasonable fact-finder
would have to conclude that Lehman Bank’s principal place of business
was in Delaware. See Lehman Bros. Bank, FSB, 937 A.2d at 103-104
(holding that Lehman Bank had its principal office in Delaware, rather than
New York, based in part on Lehman Bank’s establishment of its home
office in Delaware). As a result, Lehman Bank is considered a resident of
Delaware.
b. Aurora forfeited and waived its arguments to the contrary.
Aurora makes two arguments to the contrary:
1. Under 12 C.F.R. § 1263.18(c), a federal savings and loan
association can designate its principal place of business as a
location other than the home office.
2. Though Aurora belongs to the Pittsburgh Federal Home Loan
Bank, a federal savings and loan association can be a member
of a Federal Home Loan Bank for a district adjoining the
district of its principal place of business.
19
But Aurora did not preserve these arguments in district court and failed to
properly present them here.
Aurora forfeited the arguments by failing to make them in district
court. See George v. United States, 672 F.3d 942, 947 (10th Cir. 2012). We
would ordinarily apply the plain-error standard, but Aurora failed to argue
for plain error. As a result, we decline to consider the new arguments. See
Richison v. Ernest Grp., Inc., 634 F.3d 1123, 1128, 1130-31 (10th Cir.
2011).
Aurora not only forfeited the arguments but also waived them by
failing to raise these arguments until the reply brief, where Aurora
relegated the arguments to a footnote. See M.D. Mark, Inc. v. Kerr-McGee
Corp., 565 F.3d 753, 768 n.7 (10th Cir. 2009) (“[T]he general rule in this
circuit is that a party waives issues and arguments raised for the first time
in a reply brief.”); United States v. Hardman, 297 F.3d 1116, 1131 (10th
Cir. 2002) (“Arguments raised in a perfunctory manner, such as in a
footnote, are waived.”).
4. The claims accrued in Delaware.
New York’s borrowing clause applies only if the claims accrued
outside of New York. Relying on this condition, Aurora argues that the
claims accrued in New York rather than Delaware. 7 We disagree.
7
Lehman Holdings does not raise this argument on appeal.
20
In New York, economic injuries ordinarily accrue “where the
plaintiff resides and sustains the economic impact of the loss.” Portfolio
Recovery Assocs., LLC v. King, 927 N.E.2d 1059, 1061 (N.Y. 2010)
(quoting Global Fin. Corp. v. Triarc Corp., 715 N.E.2d 482, 485 (N.Y.
1999)). Under this principle, Aurora presumptively sustains the economic
loss at its place of residence. See Gorlin v. Bond Richman & Co., 706 F.
Supp. 236, 240 (S.D.N.Y. 1989) (“For purposes of the New York
borrowing statute, a cause of action accrues where the injury is sustained.
In cases involving economic harm, that place is normally the state of
plaintiff’s residence.”); Global Fin. Corp., 715 N.E.2d at 486 (stating a
preference for “a rule requiring the single determination of a plaintiff's
residence” as dispositive of the place of accrual, rather than “a rule
dependent on a litany of events relevant to the ‘center of gravity’ of a
contract dispute”). Because Aurora resided in Delaware, its claim accrued
there, too.
When considering residency in a case involving securities trading, an
intermediate appellate court has considered other factors. Loreley Financ.
(Jersey) No. 28, Ltd. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 985
N.Y.S.2d 499, 501-02, 117 A.D.3d 463, 465 (N.Y. App. Div. 2014). These
factors included “how and where plaintiff [had] paid for the securities,
where plaintiff [had] maintained the trading account in which the loss was
reflected, and the manner in which the securities [had been] handled.” Id.
21
But New York’s highest court has not adopted these factors. Instead,
that court has adhered to its general rule presuming that economic injury is
sustained wherever the company has its principal place of business. See
Portfolio Recovery Assocs., LLC v. King, 927 N.E.2d 1059, 1061 (N.Y.
2010). That was in Delaware.
5. Under Delaware law, the limitations period is three years.
Under the borrowing clause, we must apply the shorter of the
limitations periods in New York and Delaware. The parties agree that
Delaware’s three-year period of limitations is shorter than New York’s.
See 10 Del. Code Ann. § 8106(a); see also Levey v. Brownstone Asset
Mgmt., LP, 76 A.3d 764, 768 (Del. 2013) (“[A] breach of contract action
must be brought within three years from the date that the cause of action
accrued.”); Scharf v. Edgcomb Corp., 864 A.2d 909, 911, 920 (Del. 2004)
(applying § 8106’s three-year period of limitations to an indemnification
claim). As a result, we apply Delaware’s three-year period of limitations.
IV. Because the claims accrued more than three years before the
plaintiffs sued, the claims are time-barred under Delaware’s
period of limitations.
Because the claims are subject to Delaware’s three-year period of
limitations, we must determine whether the causes of action had accrued
more than three years before the plaintiffs sued. Although the plaintiffs
argue that the claims accrued within the three-year limitations period, we
conclude that the claims accrued in 2006 and 2007. But Lehman Holdings
22
did not sue until 2011, and Aurora waited until 2012 to sue. Thus, all of
the claims are untimely under Delaware’s statute of limitations.
A. Because the claims brought by Aurora and Lehman
Holdings accrued in 2006 and 2007, they are time-barred
under Delaware’s three-year limitations period.
To determine whether the claims preceded the suits by more than
three years, we must first consider when the claims accrued. See Hahn
Auto. Warehouse, Inc. v. Am. Zurich Ins. Co., 967 N.E.2d 1187, 1190 (N.Y.
2012) (“[T]he statute of limitations begins to run when a cause of action
accrues.”). We conclude that the claims accrued when the alleged breaches
took place in 2006 and 2007, rendering the claims time-barred under the
Delaware statute of limitations.
Aurora and Lehman Holdings pleaded a right to indemnity based on
causes of action for breach of contract and breach of express warranty. For
both types of claims, Aurora and Lehman Holdings allege harm from
breaches of the representations and warranties contained in the Loan
Purchase Agreements and refusal to repurchase the loans.
Under either New York or Delaware law, these claims accrued when
the breaches took place (in 2006 and 2007) rather than when Universal
American and Standard Pacific refused to repurchase the loans. 8 See Cent.
Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, No. 5140-CS,
8
Because both New York and Delaware law lead to the same result, we
need not decide which state’s law governs on accrual.
23
2012 WL 3201139, at *17, *23 (Del. Ch. Aug. 7, 2012) (unpublished)
(noting that (1) “a cause of action for breach of representation accrues on
the date of the contract’s closing” because that is when the breach occurs
and (2) “Delaware’s statute of limitations for contract claims begins to run
on the date of the breach, regardless of whether the plaintiff is ignorant of
the cause of action”); W. 90th Owners Corp. v. Schlechter, 525 N.Y.S.2d
33, 35, 137 A.D.2d 456, 458 (N.Y. App. Div. 1988) (stating that a cause of
action for breach of contract representations accrues when the breach took
place).
Lehman Holdings and Aurora waited until 2011 or later to sue.
Because Delaware’s three-year limitations period began to run when the
claims accrued in 2006 and 2007, all of the claims are time-barred under
Delaware’s three-year period of limitations.
B. We reject the contrary arguments by Aurora and Lehman
Holdings.
Aurora and Lehman Holdings argue that their claims accrued within
three years of the suits. We disagree.
24
1. Aurora’s claims accrued when the sales took place rather
than when Standard Pacific refused to repurchase the loans.
In its briefing, Aurora argued that its claims had accrued when
Standard Pacific refused to repurchase the loans, not when the breaches
had taken place. But this argument is unsupportable under either New York
or Delaware law.
Before oral argument, the New York Court of Appeals decided ACE
Securities Corp. v. DB Structured Products, Inc., 25 N.Y.3d 581 (N.Y.
2015). In oral argument, Aurora’s counsel conceded that under ACE
Securities, the claims had accrued before Standard Pacific refused to
repurchase the loans. See ACE Secs. Corp. v. DB Structured Prods., Inc.,
25 N.Y.3d 581, 596-97 (N.Y. 2015) (rejecting the argument that “the cure
or repurchase obligation transformed a standard breach of contract remedy,
i.e. damages, into one that lasted for the life of the investment”).
ACE Securities confirms that the refusal to repurchase the loans does
not constitute a separate breach under New York law: “The cure or
repurchase obligation is an alternative remedy, or recourse, for the
[plaintiff], but the underlying act the [plaintiff] complains of is the same:
the quality of the loans and their conformity with the representations and
warranties.” Id. at 596 (emphasis in original). Because the repurchase
obligation involves only the remedy, it does not affect application of the
statute of limitations. Id. at 597, 599; see also Hahn Auto. Warehouse, Inc.
25
v. American Zurich Ins. Co., 967 N.E.2d 1187, 1191 (N.Y. 2012) (“[T]he
statute of limitations . . . was triggered when the party that was owed
money had the right to demand payment, not when it actually made the
demand.”). Otherwise we would be treating a contractual remedy—a right
to repurchase by the seller—as if it were its own cause of action. Lehman
XS Trust, Series 2006–4N, by U.S. Bank Nat’l Ass’n v. Greenpoint Mortg.
Funding, Inc., 991 F. Supp. 2d 472, 478 (S.D.N.Y. 2014).
The same is true under Delaware law. In Delaware, a claim accrues at
the time of the alleged unlawful act, not when the plaintiff suffers an
injury. Wal–Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 319 (Del.
2004). Thus, if a contract imposes repurchase or cure obligations on the
seller and the seller fails to repurchase or cure on demand, the claim would
still accrue as soon as the defendant breaches the underlying
representations and warranties. See, e.g., Cent. Mortg. Co. v. Morgan
Stanley Mortg. Capital Holdings LLC, No. 5140-CS, 2012 WL 3201139, at
*6, *17 (Del. Ch. Aug. 7, 2012) (unpublished) (holding that when the
representations and warranties were made on the date of closing, the
statute of limitations began to run on that date even though the contract
imposed cure and repurchase obligations on the defendant).
26
2. Lehman Holdings’ claims accrued when the sales took place
rather than when a third party was paid.
Lehman Holdings argues that its claims accrued within three years.
For this argument, Lehman Holdings relies on two points:
1. It pleaded indemnity claims.
2. Indemnity claims are governed by accrual rules that differ from
those involving contract claims.
We disagree with the first point: Lehman Holdings pleaded breach of
contract, rather than indemnity; thus, Lehman Holdings’ claims accrued at
the closing of the sales.
The plaintiff’s choice of a cause of action affects not only the
substance of the remedies available, but also the application of the
limitations period:
Where a suit invokes several causes of action, each is subject
to a distinct statute of limitations; thus, distinct accrual periods
should apply as to each cause of action. See King v. Otasco,
Inc., 861 F.2d 438, 441 (5th Cir. 1988). This is true even if the
causes of action are derived from a single event. Id.
Tiberi v. Cigna Corp, 89 F.3d 1423, 1428 (10th Cir. 1996).
New York courts recognize that a claim for indemnification is
distinct from a claim for breach of contract. 9 For example, in Varo, Inc. v.
Alvis PLC, 691 N.Y.S.2d 51, 261 A.D.2d 262 (N.Y. App. Div. 1999), the
New York Supreme Court Appellate Division distinguished between claims
9
We focus here on New York law because the Loan Purchase
Agreements require application of New York law.
27
involving breach of warranty and indemnification. Varo, Inc., 691
N.Y.S.2d at 55, 261 A.D.2d at 264-65. Explaining this distinction, the
court said that the plaintiff’s first cause of action involved indemnification
because “[t]he pleadings characterize the action as one for contractual
indemnity, and the amended complaint itself alleges” a failure to
indemnify. Id.
In contrast, Lehman Holdings’ amended complaints characterize the
actions as suits for breach of contract. For example, each amended
complaint identifies a single cause of action, labeled “Breach of Contract.”
Lehman Holdings’ App’x at 22, 928, 1606, 2274, 3229. Similarly, the
prayers for relief request “all damages arising from or relating to Universal
[American’s] breaches of contract” and “an Order of this Court declaring
that Universal [American] is required to compensate Lehman immediately
for all actual and consequential damages resulting from Universal
[American’s] breaches of the Representations, Warranty, and Covenant
provisions of the Agreement and Seller’s Guide.” E.g., id. at 23, 929. And
in moving for summary judgment, Lehman Holdings expressly
characterized its claim as one for breach of contract. For example, Lehman
Holdings argued:
As a result of any one of the various loan defects,
[Universal American] breached its representations regarding
the quality of the loan, the veracity of the loan documents, and
compliance with the underwriting guidelines. Consequently,
[Lehman Bank] did not receive the product for which it had
28
purchased in reliance upon [Universal American’s]
representations. [Lehman Bank] received a product of lesser
value and greater risk. Accordingly, [Universal American]
breached the Agreement. [Universal American] also refused
[Lehman Holdings’] demands for repurchase and
indemnification. These facts establish a breach of the parties’
unambiguous contract and that [Lehman Holdings] is due
judgment as a matter of law.
Id. at 956 (Lehman Holdings’ argument for partial summary judgment in
No. 13-cv-87-CMA-MJW); see also id. at 3472 (virtually identical
quotation by Lehman Holdings in its motion for partial summary judgment
in No. 13-cv-92-WJM-BNB); id. at 160 (virtually identical quotation by
Lehman Holdings in its motion for partial summary judgment in No. 13-
cv-91-REB-KMT); id. at 1621 (Lehman Holdings arguing in its motion for
partial summary judgment in No. 13-cv-93-CMA-MJW that “[t]his is a
straightforward breach of contract action arising from the sale of a
defective or non-conforming loan by a loan originator to an investor”); id.
at 2290 (identical argument by Lehman Holdings in its motion for partial
summary judgment in No. 13-cv-88-CMA-MEH).
In its five amended complaints and motions for partial summary
judgment, Lehman Holdings referred to indemnification only as one of the
ways that Universal American breached the contract, stating that the
breaches consisted of failure to repurchase the loans “and/or fail[ure] to
indemnify Lehman for its losses.” E.g., id. at 22. But Lehman Holdings
never asserted indemnification as a cause of action distinct from the cause
29
of action for breach of contract. For example, in none of the five amended
complaints is there any mention of Freddie Mac, Fannie Mae, or any
payment by Lehman Holdings to a third party.
Through the amended complaints and summary judgment briefing,
Lehman Holdings presented the claim in district court solely as one for
breach of contract, with indemnity as a remedy rather than a distinct cause
of action. As a result, Lehman Holdings cannot avoid summary judgment
by recasting its contract claim as an indemnity claim. See Maldonado v.
City of Altus, 433 F.3d 1294, 1314 (10th Cir. 2006) (declining to consider
a theory newly presented in the plaintiffs’ responses to summary judgment
because the theories had not appeared in the complaints), overruled on
other grounds as recognized by Metzler v. Fed. Home Loan Bank of
Topeka, 464 F.3d 1164, 1171 n.2 (10th Cir. 2006).
Lehman Holdings downplays the absence of an indemnity claim in
the amended complaints, arguing that Universal American was not
prejudiced by the absence of allegations involving liability to a third party.
This contention confuses the issue. Universal American has not argued
prejudice; it argues that Lehman Holdings pleaded indemnity as a remedy
for breach of contract rather than as a “stand-alone” legal theory. We
agree. Lehman Holdings cannot plead one theory to the district court and
urge reversal on an entirely different theory. See id.
30
Lehman Holdings not only deviated from the contract claim pleaded
in the amended complaints but distorted the nature of a true indemnity
claim. An “indemnity claim is a separate substantive cause of action,
independent of the underlying wrong.” McDermott v. City of New York, 406
N.E.2d 460, 462-63 (N.Y. 1980). In an indemnity claim, the plaintiff
alleges that the defendant owed a duty to a third party rather than to the
plaintiff itself:
The gravamen of an indemnity claim is not that the
defendant has breached some duty of care which it owes
directly to the plaintiff, but rather that they both owe a duty to
some third party and that because of defendant’s negligence or
wrongful conduct the plaintiff has been held legally liable and
cast in damages to the third party. It is the equitably imposed
obligation which the actual wrongdoer owes to indemnify the
other who has, without fault on its part, become legally liable
and cast in damages to a third party by reason of that
wrongdoing that is the only critical duty vis-a-vis plaintiff and
defendant in an indemnity context.
City of New York v. Lead Indus. Ass’n, Inc., 644 N.Y.S.2d 919, 923-24,
222 A.D.2d 119, 126-27 (N.Y. App. Div. 1996) (per curiam).
An indemnity claim, like any other, requires proof of a harm.
McCabe v. Queensboro Farm Prods., Inc., 239 N.E.2d 340, 342 (N.Y.
1968). The harm arises from the plaintiff’s payment to an injured third
party rather than injury to the plaintiff itself. See, e.g., Dutton v. Mitek
Realty Corp., 463 N.Y.S.2d 471, 472, 463 A.D.2d 769, 770 (App. Div.
1983).
31
Applying these characteristics of indemnity claims, the Second
Circuit Court of Appeals addressed a similar issue in Peoples’ Democratic
Republic of Yemen v. Goodpasture, Inc., 782 F.2d 346 (2d Cir. 1986).
There too the issue of timeliness turned on whether the claim involved
breach of contract or indemnity. Id. at 350. Concluding that the claim
involved breach of contract, rather than indemnity, the Second Circuit
Court of Appeals held that the claim was time-barred under the limitations
period for contract actions. Id. at 350-52.
The plaintiff (Yemen) bought grain from the defendant
(Goodpasture), and the grain deliveries were late. Id. at 347-48. Because
the deliveries were late, Yemen had to pay a third party (a shipowner)
additional charges. Id. at 349. Yemen sued Goodpasture to recover the
additional expenses within two years of paying the shipowner, but about
eight years after Goodpasture had made the late deliveries. Id. at 348-49.
The claim would be timely if it involved indemnity and untimely if it
involved breach of contract. Id. at 350.
The Second Circuit characterized the claim as one for breach of
contract, even though Yemen had not incurred any loss until it paid the
additional charges to a third party (the shipowner). Id. at 351. But
Goodpasture’s alleged contractual duty ran to Yemen, not the shipowner.
Id. As a result, Yemen’s claim involved breach of contract, rather than a
“legitimate indemnity claim,” and the payments to the third party were
32
recoverable only as damages from Goodpasture’s alleged breach of
contract. Id. at 350-52.
In applying Yemen, we would regard Lehman Holdings’ claims as
causes of action for breach of contract even if Lehman Holdings had
pleaded them as claims for indemnity. “An action ‘does not become an
action for indemnity merely because the pleader has so denominated it.’”
Id. at 350 (quoting Bunker v. Bunker, 437 N.Y.S.2d 326, 328, 80 A.D.2d
817, 817 (N.Y. App. Div. 1981)).
Like Yemen, Lehman Holdings had to pay third parties (Freddie Mac
and Fannie Mae). But again like Yemen, Lehman Holdings had to pay these
third parties only because Universal American breached its contract with
Lehman Holdings. Just as Goodpasture’s contract created a duty to Yemen
rather than the shipowner, Universal American’s contract created a duty to
Lehman Holdings rather than Freddie Mac or Fannie Mae. Thus, Yemen
would require us to base accrual of the cause of action on the date of
Universal American’s breach of contract rather than the date of Lehman
Holdings’ payment to a third party.
* * *
As a result, we conclude that the causes of action accrued when
Universal American and Standard Pacific sold the defective loans with the
representations and warranties. These sales had closed in 2006 and 2007,
more than three years before Aurora and Lehman Holdings brought suit in
33
2011 and 2012. Thus, all of the claims are presumptively time-barred under
Delaware’s three-year period of limitations.
V. Standard Pacific did not agree to extend the limitations period to
20 years.
Aurora argues that Standard Pacific agreed to extend the limitations
period to 20 years. This argument is invalid.
In applying New York’s borrowing clause, we apply Delaware’s
tolling principles. Smith Barney, Harris Upham & Co., Inc. v. Luckie, 647
N.E.2d 1308, 1316 (N.Y. 1995), abrogated on other grounds by
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995).
A Delaware statute, Title 10, Section 8106(c) of the Delaware Code,
allows contracting parties to extend the applicable period of limitations up
to 20 years: “[A]n action based on a written contract, agreement or
undertaking involving at least $100,000 may be brought within a period
specified in such written contract, agreement or undertaking provided it is
brought prior to the expiration of 20 years from the accruing of the cause
of such action.” Del. Code Ann. tit. 10, § 8106(c). But Section 8106(c)
does not apply here because the parties did not express an intent to take
advantage of the law. Thus, the period of limitations remains three years
and the claims are time-barred.
Aurora relies on Bear Stearns Mortgage Funding Trust 2006-SL1 v.
EMC Mortgage LLC, No. 7701-VCL, 2015 WL 139731 (Del. Ch. Jan. 12,
34
2015) (unpublished), arguing that the court must infer an intent to extend
the limitations period when the loan purchase agreement
 extends the seller’s representations and warranties
beyond the closing and
 provides that a cause of action accrued only upon
the seller’s discovery of a breach and failure to
cure.
But the second requirement is absent because the Loan Purchase
Agreements and Seller’s Guides do not address accrual of the claim.
This type of omission did not exist in Bear Stearns, for there the
contract provided an express condition precedent on accrual of a claim:
Any cause of action . . . arising out of a breach by [EMC] of
any representations and warranties made in this Section 7 shall
accrue as to any Mortgage Loan upon (i) discovery of such
breach by [EMC] or notice thereof by the party discovering
such breach and (ii) failure by [EMC] to cure such breach,
purchase such Mortgage Loan or substitute a qualifying
Replacement Mortgage Loan pursuant to the terms hereof.
Bear Stearns, 2015 WL 139731, at *4. The court held that this provision
created a “condition precedent to the running of the statute of limitations.”
Id. at *11. Such a condition precedent, together with the clause extending
the representations and warranties, reflected a desire to extend the statute
of limitations under § 8106(c). Id. at *15.
The court compared the accrual provision to “notice-and-repurchase”
provisions, like the one in Central Mortgage Co. v. Morgan Stanley
Mortgage Capital Holdings LLC, No. 5140-CS, 2012 WL 3201139 (Del.
Ch. Aug. 7, 2012) (unpublished), which do not trigger § 8106(c). Bear
35
Stearns, 2015 WL 139731, at *11. The Central Mortgage provision gave
the seller 60 days to cure any breach or repurchase the underlying asset,
but did not make accrual of the claim contingent upon the buyer’s attempt
to exercise these pre-suit remedial rights:
Within 60 days of the earlier of either discovery by or notice to
the Seller of any such breach of a representation or warranty
which materially and adversely affects the ownership interest
of the Servicer in the [s]ervicing [r]ights related to any
[m]ortgage [l]oan, the Seller shall use its best efforts to
promptly cure such breach in all material respects, and if such
breach cannot be cured, the Seller shall, at the Servicer's
option, repurchase the [s]ervicing [r]ights affected by such
breach at [a price set by a contractual formula].
Cent. Mortg. Co., 2012 WL 3201139 at *6. The Bear Stearns court noted
that the Central Mortgage provision “[t]echnically . . . was not a
contractual provision addressing the accrual of claims, but rather a
provision governing the Seller’s obligation to cure.” Bear Stearns, 2015
WL 139731, at *11-12.
In our case, the Loan Purchase Agreements more closely track the
language in Central Mortgage, providing pre-suit remedies without
mentioning accrual of the buyer’s claims:
In the event of a breach of any of the representations,
warranties or covenants . . . Seller shall, at Purchaser’s option,
repurchase the related Mortgage Loan . . . . Any such
repurchase shall occur no later than thirty (30) days after the
earlier of the date on which Purchaser notifies Seller of such
breach or the date on which Seller knows of such breach.
....
36
All of Purchaser’s remedies hereunder, including, without
limitation, the repurchase obligation with respect to the
Mortgage Loan, the purchase obligation with respect to the
Mortgaged Property, and the indemnification with respect to
any breach of a representation, warranty or covenant (or any
other Event of Default), shall exist regardless of (i) the dates of
Purchaser’s discovery and notice to Seller of the breach and
Purchaser’s demand for any remedy and (ii) any limitation or
qualification of a representation or warranty as being made “to
Seller’s knowledge” or “to the best of Seller’s knowledge” or
any similar qualification relating to the knowledge of Seller.
E.g., Aurora’s App’x at 124-25. Because the agreements do not address
accrual of a cause of action, we cannot infer an intent to extend the
limitations period. As a result, the three-year limitations period applies,
and all of Aurora’s claims are time-barred.
VI. Conclusion
The district court did not err in granting Universal American’s
motions for summary judgment and Standard Pacific’s motion to dismiss.
Therefore, we affirm the judgments.
Entered for the Court
Robert E. Bacharach
Circuit Judge
37