Lehman XS Trust v. Greenpoint Mortgage Funding, Inc.

          Argued: April 17, 2018

         Plaintiff U.S. Bank National Association ("U.S. Bank") appeals from a judgment entered in the United States District Court for the Southern District of New York (Carter, J.) dismissing its second amended consolidated complaint as untimely. U.S. Bank argues, among other things, that the district court erred in dismissing its complaint because (1) its claim for indemnification under the contract in dispute is independent of its claim for breach of that contract, and the former claim therefore was timely filed in federal court; and (2) its claim for indemnification based on separate contracts executed at a later date relates back to the original state-court filing under Federal Rule of Civil Procedure 15(c). We disagree. AFFIRMED.

          HECTOR TORRES (David J. Abrams, David J. Mark, on the brief), Kasowitz Benson Torres LLP, New York, NY, for Plaintiffs- Appellants.

          THEODORE R. SNYDER (James A. Murphy, New York, NY; Cameron S. Matheson, Glen Allen, VA, on the brief), Murphy & McGonigle, P.C., for Defendant-Appellee.

          Before: WESLEY, CHIN, AND CARNEY, Circuit Judges.

          WESLEY, CIRCUIT JUDGE:

         This appeal is the most recent chapter in the ongoing saga of the last decade's housing finance crisis. At the core of the appeal are three trusts (the "Trusts") composed of residential mortgage-backed securities that Defendant- Appellee GreenPoint Mortgage Funding, Inc. ("GreenPoint") sold in 2006 to Lehman Brothers Holding, Inc., and Lehman Brothers Bank, FSB (collectively, "Lehman"), with Plaintiff-Appellant U.S. Bank acting as Trustee. Six years after the sale, in 2012, a forensic review of the Trusts revealed that nearly all of the sample mortgages GreenPoint sold to Lehman were in breach of the representations and warranties ("R & Ws") GreenPoint made in its Flow Mortgage Loan Purchase and Warranties Agreements ("MLPAs") with Lehman.

         GreenPoint failed to cure or repurchase the loans within the contractual time frames. As a result, the Federal Housing Finance Agency ("FHFA")-acting on behalf of U.S. Bank as Trustee and as conservator for the Federal Home Loan Mortgage Corporation ("Freddie Mac"), ^[1] which in turn was the beneficial owner of some of the certificates issued by the Trusts-filed summonses with notice in New York Supreme Court.^[2]

         GreenPoint removed the actions to federal court, at which point the FHFA dropped out of the litigation and U.S. Bank as Trustee filed an amended and consolidated complaint.^[3] After discovery and the filing of a second amended consolidated complaint, GreenPoint moved for summary judgment as to three counts of this complaint, and to dismiss as to the fourth count, arguing, among other things, that the claims were barred by New York's statute of limitations.

         The district court concluded, for various reasons discussed in this opinion, that none of U.S. Bank's claims was timely. The issue before this Court is whether any of U.S Bank's claims survive GreenPoint's motions for summary judgment and dismissal. We affirm the district court's conclusion that none does.

         BACKGROUND

         I. Factual Background

         In 2006, Lehman, not a party to this appeal, purchased aggregated pools of residential home mortgages from GreenPoint.^[4] The sales were governed by two MLPAs, each of which contained a series of R & Ws as to the quality of the mortgage loans.^[5] When Lehman purchased the loans from GreenPoint in 2006, they had an aggregate principal balance exceeding $3.39 billion.

         Lehman conveyed the mortgage loans and its rights under the MLPAs to a depositor (also not a party to this appeal), which then conveyed the mortgage loans to three Trusts-GP2, GP3, and GP4-via another set of contracts denominated "Trust Agreements."^[6] The last dates on which Lehman purchased mortgage loans from GreenPoint (i.e., the effective dates of the R & Ws) were May 15, 2006 (GP2), June 15, 2006 (GP3), and July 17, 2006 (GP4). The Trusts closed on the MLPAs on May 31, 2006 (GP2), June 30, 2006 (GP3), and July 31, 2006 (GP4). Once the mortgage loans were deposited into the Trusts, they were securitized and certificates were issued representing rights to cash flows from the securitized loan portfolios. Investors then purchased the certificates, thereby acquiring an ownership interest in the Trusts. Freddie Mac was one of these investors.^[7]

         The R & Ws contained in the MLPAs and the Trust Agreements made assertions about the quality of individual mortgage loans and the mortgage loan pools. Specifically, Section 7 of the MLPAs represented that the mortgage loans were "underwritten in accordance with [GreenPoint's] Underwriting Guidelines," J.A. 160, 261; that the mortgage loan schedules were "complete, true and correct," id. 154, 255; that GreenPoint possessed complete mortgage files, id. 161, 262; and that, except as specifically scheduled, the loan-to-value ratio for the mortgage loans did not exceed 80%, id. 158, 259. The MLPAs provided that GreenPoint made these R & Ws "as of" each closing date. Section 2.03 of the Trust Agreements incorporated the R & Ws from the MLPAs.

         In an effort to ensure compliance with the R & Ws, the MLPAs and the Trust Agreements created a contractual remedy in the event that GreenPoint breached. Under Section 8 of the MLPAs, upon learning of a breach, GreenPoint had sixty days to "use its best efforts promptly to cure such [b]reach in all material respects." Id. 165, 268. If the breach could not be cured, Section 8 of the MLPAs provided that GreenPoint "shall, at the Purchaser's option, repurchase such Mortgage Loan" at an established repurchase price. Id. The Trust Agreements included an identical clause, except they gave GreenPoint ninety days from the discovery of the breach to cure or repurchase. The same section of the MLPAs contained an Accrual Provision that established how the parties would proceed in the event of a breach.^[8]

         Section 9 of the MLPAs also contained an indemnification clause, which reads, in relevant part:

[GreenPoint] agrees to indemnify [Lehman] and hold it harmless from and against any and all claims, losses, damages, penalties, fines, forfeitures, legal fees and related costs, judgments, and any other costs, fees and expenses that [Lehman] may sustain in any way related to (i) any act or omission on the part of [GreenPoint] or any other person or entity in the origination, receiving, processing, funding or servicing any Mortgage Loan prior to the related Transfer Date or otherwise arising from the transfer of servicing of the Mortgage Loans provided for in this Agreement, [and] (ii) any assertion based on, grounded upon [or] resulting from a Breach of any of [GreenPoint's R & Ws] contained herein . . . . [GreenPoint] shall immediately notify [Lehman] if a claim is made by a third party with respect to this Agreement or the Mortgage Loans . . .

J.A. 167, 270.

         In addition to the indemnification provisions included in the MLPAs, GreenPoint (together with Lehman and SASC) entered into separate Indemnification Agreements for each Trust. The agreements provided that GreenPoint would "indemnify and hold harmless" the other parties to the MLPAs and Trust Agreements "from and against any and all losses, claims, liabilities, damages, penalties, fines, forfeitures, legal fees and expenses and related costs, judgments, and any other costs, fees and expenses" that "arise out of or are based upon any untrue statement or alleged untrue statement of any material fact" or the omission of any such fact in the information GreenPoint provided to Lehman. Id. 1062, 1071, 1080. The relevant "as of" dates for the Indemnification Agreements were May 30, 2006 (GP2); June 28, 2006 (GP3); and July 28, 2006 (GP4).

         In 2012, Freddie Mac conducted a forensic review of the loan files^[9] and determined that an overwhelming percentage of the mortgage loans in the Trusts breached GreenPoint's R & Ws under the MLPAs and Trust Agreements.^[10] U.S. Bank submitted breach notices to GreenPoint on the following dates: March 19, 2012, and August 24, 2012, for the GP2 Trust; March 19, 2012, for the GP3 Trust; and April 17, 2012, for the GP4 Trust. GreenPoint did not cure or repurchase within the sixty- or ninety-day periods established in the MLPAs and Trust Agreements, respectively.

         II. ...