United States District Court, D. Connecticut
TMI TRUST COMPANY, solely in its capacity as Separate Trustee of the Securitized Asset Backed Receivables LLC Trust 2006-WM2, Plaintiff,
WMC MORTGAGE, LLC f/k/a WMC MORTGAGE CORP., Defendant.
MEMORANDUM AND ORDER
CHARLES S. HAIGHT, JR. SENIOR UNITED STATES DISTRICT JUDGE.
December 12, 2017 the New York Court of Appeals filed its
opinion in Nomura Home Equity Loan, Inc. v. Nomura Credit
& Capital, Inc. The uncorrected decision, subject to
revision, is reported at 2017 WL 6327110.
for Defendant WMC argue in a letter brief dated December 15,
2017 [Doc. 242] that the Court of Appeals' decision in
Nomura makes all the difference in the case at bar,
with particular reference to Defendant's pending
Daubert motion to preclude or limit the proffered
expert opinion of Dr. Joseph R. Mason, a trial witness on
damages identified by Plaintiff TMI. WMC perceives this
recent Nomura decision as mandating the granting of
for Plaintiff TMI argue in a responsive letter brief dated
December 18, 2017 [Doc. 246] that the Court of Appeals'
decision in Nomura has nothing to do with the case
at bar, WMC's Daubert motion should be denied,
and Dr. Mason allowed to testify in the manner appearing in
his previously filed written opinion.
Court desires further submissions of counsel with respect to
the possible effects of the Nomura decision upon the
proper resolution, under governing New York law, of certain
issues presented by this case. This Memorandum, which
expresses no present opinion on the Daubert motion
or anything else, is intended by the Court to assist counsel
in fashioning the further assistance their additional
submissions will give the Court in this challenging case.
Daubert motion argues principally that the
"Sole Remedy" provision in the pooling and service
agreement (PSA) precludes most of Dr. Mason's damages
calculations. This Court's earlier summary judgment
opinion, reported at 2017 WL 3401254, posed the question of
"the effect of the sole remedies provision upon a
trust's claim of an originator's failure to notify
other PSA parties of multiple and pervasive breaches of
representations and warranties in mortgages the originator
negotiated and issued, " a question where "some
doubt arises from recent New York appellate cases."
Id. at *15. The principal First Department decisions
I identified in the ensuing discussion were Morgan
Stanley Mortgage Loan Trust 2006-13ARX v. Morgan Stanley
Mortgage Capital Holdings LLC, 143 A.D.3d 1 (2016)
("Morgan Stanley"), and Nomura,
133 A.D.3d 96 (2015). No appeal was taken from the First
Department's decision in Morgan Stanley. The
Court of Appeals reversed the First Department's relevant
holding in Nomura.
Morgan Stanley, the plaintiff trust claimed that the
originator of securitized mortgages breached what may be
called a "Duty to Notify" provision in the
underlying contract. In the case at bar, the comparable Duty
to Notify provision is found in Section 2.03(c) of the PSA,
which provides in relevant part that upon discovery by WMC
"of a breach of any of the foregoing representations and
warranties, " WMC "shall give prompt written notice
to the others" (including the Trustee).
Nomura, the first of these two First Department
cases, the plaintiff trustee asserted a claim under the Duty
to Notify provision, and also claimed that the defendant
sponsor violated the "No Untrue Statement"
provision, found in Section 7 of the mortgage loan purchase
agreement (MLPA), which stated that "This Agreement does
not contain any untrue statement of material fact or omit to
state a material fact necessary to make the statements
contained herein not misleading." The No Untrue
Statement provision accompanied "the specific
representations and warranties" in the MLPAs and PSAs
"concerning the suitability of each of the mortgage
loans contained in the loan pools." The First
Department's decision in Nomura held that
neither the No Untrue Statement claim nor the Duty to Notify
claim were precluded by the Sole Remedy provision. Its order
modified the trial court's order:
to permit plaintiffs to seek damages on the first cause of
action for breach of the No Untrue Statement provision
(section 7 of the MLPA) and for failure to give prompt
written notice after discovering material breaches of the
representations and warranties in section 8 of the MLPA.
133 A.D.3d at 110.
Morgan Stanley, the more recent First Department
case, the plaintiff trustee asserted a Duty to Notify claim.
The trial court dismissed the claim on defendant's
motion, but the First Department reversed, relying in part on
its prior decision in Nomura. The First Department
After the parties briefed this appeal, this Court modified
the motion court's decision in Nomura, holding
that under similar RMBS agreements, a seller's failure to
provide the trustee with notice of material breaches it
discovers in the underlying loans states an independently
breached contractual obligation, allowing a plaintiff to
pursue separate damages. Consistent with our decision in
Nomura, we now modify the motion court's order
dismissing the failure to notify claim made in this case and
143 A.D.3d at 7 (citation omitted).
next event in this evolution of authority occurred last week,
when the Court of Appeals (after initial argument and then
re-argument) decided the appeal in Nomura. The Court
confined its consideration to the plaintiff trust's No
Untrue Statement claim. Plaintiff escaped dismissal of that
claim in the First Department. The Court of Appeals reversed
and dismissed the claim. The first paragraph of Judge
Stein's opinion, ...