U.S. Bank National Assoc. v. Dexia Real Estate Capital Markets

14-2859-cv(L)
U.S. Bank National Assoc., et al v. Dexia Real Estate Capital Markets
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 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 16th day of March, two thousand sixteen.
Present:
PETER W. HALL,
DEBRA ANN LIVINGSTON,
SUSAN L. CARNEY,
Circuit Judges.
____________________________________________________
U.S. BANK NATIONAL ASSOCIATION, as Trustee for the Registered Holders of Wachovia
Bank Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series
2006-C28, Acting by and through its Special Servicer CWCapital Asset Management LLC,
Plaintiff-Appellee,
v. Nos. 14-2859-cv(L)
14-3582-cv(Con)
DEXIA REAL ESTATE CAPITAL MARKETS, FKA ARTESIA MORTGAGE CAPITAL
CORPORATION,
Defendant–Third-Party Plaintiff–Appellant.
____________________________________________________
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FOR APPELLANT: KENNETH I. SCHRATER, (Dina R. Kaufman, on the brief),
Morgan, Lewis & Bockius LLP, New York, NY, and David D.
Ferguson, Polsinelli PC, Kansas City, MO.
FOR APPELLEE: GREGORY A. CROSS (Colleen M. Mallon and Heather Deans
Foley, on the brief), Venable LLP, Baltimore, MD.
__________________________________________________
Appeal from a judgment of the United States District Court for the Southern District
of New York (Scheindlin, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment of the district court is REVERSED,
and the case is REMANDED with instructions that Defendant-Appellant’s cross-motion
for summary judgment be GRANTED.
Defendant-Appellant Dexia Real Estate Capital Markets (“Dexia”) appeals from the
district court’s order granting summary judgment to Plaintiff-Appellee U.S. Bank National
Association (the “Trust”). Dexia challenges, inter alia, the district court’s conclusion that the
Trust’s claims were timely because the statute of limitations began to run when what the
Trust alleges was a defective loan guaranty (the “Guaranty”) was required to enforce the
defaulting loan and not when Dexia made representations and warranties that the Guaranty
was valid and enforceable. See U.S. Bank Nat’l Ass’n v. Dexia Real Estate Capital Markets, No.
12-CV-9412, 2014 WL 3368670, at *6 (S.D.N.Y. July 9, 2014). We assume the parties’
familiarity with the underlying facts and the procedural history of the case.
On appeal, Dexia argues that the Trust’s claims were not timely because the claims
for breach of representations and warranties accrued when the Mortgage Loan Purchase
Agreement (the “MLPA”) was executed. Dexia contends that the MLPA’s “material and
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adverse effect” provision does not define the substantive elements of an actionable breach—
but instead “defines what the Trust can recover for the breach and when it can seek that
recovery.” In light of the New York Court of Appeals’s recent decision in ACE Secs. Corp. v.
D.B. Structured Prods., Inc., 25 N.Y.3d 581 (2015), and this Court’s recent decision in Deutsche
Bank Nat’l Trust Co. v. Quicken Loans Inc., 810 F.3d 861 (2d Cir. 2015), we find this argument
to be persuasive.
We review a district court’s decision to grant summary judgment de novo. Gudmundsson
v. United States, 634 F.3d 212, 216 (2d Cir. 2011). “Summary judgment is appropriate if there
is no genuine issue as to any material fact, and if the moving party is entitled to a judgment
as a matter of law.” Id. (internal quotation omitted). We also review de novo the district
court’s application of the statute of limitations. Golden Pac. Bancorp v. F.D.I.C., 273 F.3d 509,
515 (2d Cir. 2001). When sitting in diversity jurisdiction and reviewing New York state law
claims, we must apply “law of New York as interpreted by the New York Court of Appeals.”
Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 739 F.3d 45, 48 (2d Cir. 2013) (per curiam).
Under New York law, the six-year limitations period on claims for breach of contract
generally runs from the time the contract was breached. N.Y. C.P.L.R. 203(a), 213(2); see also
Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399, 402 (1993). Accordingly, “[a] cause of
action for breach of contractual representations and warranties that guarantee certain facts as
of a certain date—but do not guarantee future performance—accrues on the date those
representations and warranties become effective.” Quicken Loans, 810 F.3d at 865 (citing
ACE, 25 N.Y.3d at 596).
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In this case, the Complaint alleged a breach of the representations and warranties
made in the MLPA, including that any agreement executed in relation to the underlying
mortgage loans “is a legal, valid, and binding obligation,” and that “there is no valid offset,
defense, or right to rescission with respect to [any such agreement].” Compl. ¶ 19 (quoting
MLPA Schedule I(5–6)). The MLPA specifies that these representations and warranties
were made “as of the Closing Date, with respect to . . . each Mortgage Loan.” MLPA § 3(b);
By the time the Trust filed suit in December 2012, more than six years had passed since the
MLPA was executed on October 1, 2006, and the Trust’s claims were thus time-barred.
The district court recognized that the repurchase provisions of the MLPA and the
related but separate Pooling and Service Agreement (the “PSA”), which state that a breach
must “materially and adversely affect[] the value of the affected Mortgage Loan” before the
Trust can demand cure and repurchase, see PSA § 2.03(a), MLPA § 3(c), are procedural in
nature. U.S. Bank Nat’l Ass’n, 2014 WL 3368670, at *6. The district court concluded,
however, that because the PSA and MLPA also provide that a Document Defect is not
material and adverse unless the document is needed “in connection with an imminent
enforcement of the mortgagee’s rights or remedies,” PSA § 2.03(a), MLPA § 3(c), the Trust’s
claims did not accrue until it required the defective Guaranty to enforce the defaulting loan.
Id.
The “material[] and adverse[]” effect language does not create a substantive element
of an actionable breach for statute of limitations purposes. Id. Rather, the language
referring to material and adverse effects is part of the contractual provision through which
the Trust might seek repurchase as one recourse for a breach of representations and
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warranties made in the MLPA. Such a remedial mechanism is not an element of breach and
does not toll the statute of limitations under New York law. See ACE, 25 N.Y.3d at 598
(holding that the failure to repurchase or cure under a substantially similar MLPA is not a
substantive condition precedent capable of delaying accrual of a trust’s claims). Because the
repurchase provision does not create “an independent obligation but merely an alternative
contractual remedy to damages, [and] the relevant ‘performance’ is the truth or falsity” of the
representations and warranties, the statute of limitations runs from the time those
representations and warranties were made. Quicken Loans, 810 F.3d at 867 (citation omitted).
In the alternative, the Trust argues that the cause of action accrues when demand is
made and refused, not upon breaches of the representations and warranties made in the
MLPA, because demand is a substantive condition precedent. This argument fails because,
as previously stated, the underlying performance is the truth or falsity of those representations
and warranties, as alleged in the Complaint. It thus follows that any demand requirement in
the MLPA is merely a procedural condition precedent. See ACE, 25 N.Y.3d at 597 (noting
that there is a “difference between a demand that is a condition to a party’s performance,”
such that it is substantive, and a “demand that seeks a remedy for a preexisting wrong,” such
that it is procedural).
We similarly reject the district court’s conclusion that even if the MLPA contained a
procedural demand requirement, the Trust had no right to make a demand until the material
and adverse effect language was satisfied. This argument is effectively equivalent to the
Trust’s contention that the material and adverse effect language was an essential element of
the breach. As explained above, that argument is without merit.
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We have considered the remainder of the Trust’s arguments and conclude that they
are without merit. Because the Trust’s claims accrued when the MLPA was executed and its
complaint was not filed until more than six years after that date, Dexia is entitled to
judgment as a matter of law. We therefore REVERSE the judgment of the district court
and REMAND this case with instructions that Dexia’s cross-motion for summary judgment
be GRANTED.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
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