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TMI Trust Co. v. WMC Mortgage, LLC

United States District Court, D. Connecticut

December 28, 2017

TMI TRUST COMPANY, solely in its capacity as Separate Trustee of the Securitized Asset Backed Receivables LLC Trust 2006-WM2, Plaintiff,
v.
WMC MORTGAGE, LLC f/k/a WMC MORTGAGE CORP., Defendant.

          OMNIBUS RULING ON IN LIMINE MOTIONS

          CHARLES S. HAIGHT, JR. SENIOR UNITED STATES DISTRICT JUDGE.

         A number of limine motions, filed by Plaintiff TMI or Defendant WMC on the authority of Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993) and its progeny, seek to preclude or limit the proposed testimony of expert witnesses. These motions also turn upon the proper interpretation of Fed.R.Evid. 702. This Ruling resolves those motions.

         A number of Daubert motions are generated by or relate to WMC's motion [Doc. 185] to partially exclude the expert testimony of Dr. Joseph R. Mason, a witness proffered by TMI. Mason's Ph.D. is in Economics from the University of Illinois. He is a professor of finance and banking at the Ourso School of Business, Louisiana State University, and a senior fellow at the Wharton School of the University of Pennsylvania. In Dr. Mason's words, "My field of specialization as an economist lies in applying financial, economic, valuation, and statistical analyses to complex commercial litigation and corporate strategic decision-making." Report, Ex. D [Doc. 185-6] at ¶ 10. He testifies frequently as an expert witness in litigation.

         Dr. Mason describes the services he has rendered to TMI in ¶ 4 of his report:

I have been asked by Plaintiff's counsel to provide my expert opinion on the damages incurred by the Trust under three alternative damages theories, namely: (i) monetary relief sufficient to place the Trust back in the position they would have been in had the WMC loans not been purchased by the Trust ("Rescissory Damages"); (ii) the damages incurred by the Trust resulting from their purchase of the WMC loans at a price above the actual value of those loans ("Benefit of the Bargain Damages"); and (iii) the damages incurred by the Trust based on WMC's breach of its obligation to repurchase mortgage loans in the Trust that breached WMC's representations and warranties made in connection with the sale of the loans to the Trust of ("Repurchase Damages").

         Mason summarizes his three conclusions in ¶ 5 of his report. His opinions, expressed with the testimonially familiar "degree of economic certainty, " are that Rescissory Damages amount to $906.3 million;[1] Benefit of the Bargain damages are "reasonably approximated by Rescissory Damages, " in the same amount of $906.3 million; and Repurchase Damages amount to $354.9 million.

         WMC's Daubert motion seeks to exclude entirely Dr. Mason's testimony with respect to the first two of these three damages calculations: Rescissory Damages and Benefit of the Bargain Damages. Those particular calculations, WMC contends in its notice of motion [Doc. 185], "are irrelevant as a matter of law because the sole remedy provision of the contract provides the only legally acceptable calculation of damages." Alternatively, WMC argues that "even apart from the sole remedy clause, Rescissory and Benefit of the Bargain Damages are unavailable as a matter of law and, at any rate, neither remedy is available because TMI [or Mason] offers no opinion as to causation." The careful reader will have observed that this single sentence purports to identify two, not one, alternatives to the sole remedy clause. As for Mason's third damages theory, focusing upon WMC's demonstrated failure to repurchase specific mortgage loans, WMC's motion accepts that approach in principle, but quarrels with the accuracy of Mason's calculations in practice.

         WMC's objection to Dr. Mason's Rescissory Damages theory is well founded. WMC relies principally upon a single isolated holding its brief extracts from the First Department's multi-layered decision in Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc., 133A.D.3d 96, 19 N.Y.S.3d 1 (N.Y.App.Div. 2015). In connection with one of the four residential mortgage-backed security (RMBS) cases consolidated for a single appeal, the Appellate Division said: "With respect to plaintiffs' causes of action for rescission, even if section 9(c) of the MLPA [mortgage loan purchase agreement] and section 2.03(e) of the PSA [pooling and service agreement] do not waive plaintiffs' right to seek such relief, rescission would be unwarranted because damages are available, " 133 A.D.3d at 108, language the WMC's reply brief at 3 correctly characterizes as holding that "because the plaintiffs had a damages remedy, they could not obtain rescission, regardless of whether that damages remedy was exclusive."

         The only case the First Department cited in Nomura for the proposition that "rescission would be unwarranted because damages are available" is Rudman v. Cowles Communications, 30 N.Y.2d 1 (N.Y. 1972). The plaintiff in Rudman, who owned a specialty publishing firm, contracted to sell his business to the defendant, a larger publisher, and contracted further for employment by defendant. Things did not go well. Defendant fired plaintiff. Plaintiff's suit against defendant urged that "both agreements constituted a single transaction, the continued performance of one being a condition for the other, " so that "defendants' breach of the employment agreement mandates that the acquisition be rescinded." 30 N.Y.2d at 13. Plaintiff sued in a single action for "damages for wrongful discharge and rescission for fraud." Id. at 4. The New York Court of Appeals affirmed the trial court's determination that each agreement "was a separate and independent transaction, " but went on to say:

Assuming, however, that mutually dependent contracts were involved, plaintiffs are not entitled as a matter of law to rescission. Such relief, lying in equity, is a matter of discretion. Moreover, the equitable remedy is to be invoked only when there is lacking complete and adequate remedy at law and where the status quo may be substantially restored. Here, damages appear adequate and it is impracticable to restore the status quo, the assimilation of plaintiffs' company being complete.

Id. at 13-14 (citations omitted).

         The Court of Appeals' decision in Rudman is cast in broad terms. The Second Circuit cited, quoted and followed Rudman in New Shows, S.A. de C.V. v. Don King Productions, Inc., 210 F.3d 355, 2000 WL 354214 (2d Cir. 2000) (unpublished opinion), where plaintiff sued defendant for breach of a contract to co-promote a boxing event. The Second Circuit affirmed a jury verdict in favor of plaintiff on breach of contract and fraud claims, but plaintiff, seemingly not satisfied, contended on appeal that "the district court erred in declining to instruct the jury on the remedy of rescission." 2000 WL 354214 at *2. The Second Circuit rejected that contention:

The premise of these arguments, that plaintiff is in fact entitled to rescission, is, however, incorrect.
Rescission is an equitable remedy, which "is to be invoked only when there is lacking [a] complete and adequate remedy at law and where the status quo may be substantially restored. . . . [Where] damages appear adequate and it is impracticable to ...

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