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Mastr Asset Backed Securities Trust 2006-He3 v. Wmc Mortgage, LLC

United States District Court, Eighth Circuit

October 11, 2013

Mastr Asset Backed Securities Trust 2006-HE3 by U.S. Bank National Association, solely In its capacity as the trustee pursuant to a Pooling and Servicing Agreement, dated as of August 1, 2006, Plaintiff,
v.
WMC MORTGAGE, LLC as successor to WMC MORTGAGE CORPORATION, Defendant. WMC MORTGAGE, LLC as successor to WMC MORTGAGE CORPORATION, Plaintiff,
v.
U.S. BANK NATIONAL ASSOCIATION for MASTR ASSET BACKED SECURITIES TRUST 2007-WMC1, acting solely in its capacity as the trustee pursuant to a Pooling and Servicing Agreement, dated as of February 1, 2007, Defendant. MASTR ASSET BACKED SECURITIES TRUST 2007-WMC1 by U.S. BANK NATIONAL ASSOCIATION, solely in its capacity as the trustee pursuant to a Pooling and Servicing Agreement, dated as of February 1, 2007, Plaintiff,
v.
WMC MORTGAGE, LLC formerly known as WMC MORTGAGE CORPORATION, Defendant. MASTR ASSET BACKED SECURITIES TRUST 2006-HE3 by U.S. BANK NATIONAL ASSOCIATION, solely in its capacity as the Trustee pursuant to a Pooling and Servicing Agreement, dated as of August 1, 2006, Plaintiff,
v.
WMC MORTGAGE, LLC as successor to WMC MORTGAGE CORPORATION and EQUIFIRST CORPORATION, Defendants.

Harry A. Olivar, Jr., and Jeremy Andersen, QUINN EMANUEL URQUHART & SULLIVAN LLP, and Justin H. Perl, MASLON EDELMAN BORMAN & BRAND, LLP, for U.S. Bank National Association.

Paul M. Smith, and Matthew S. Hellman, JENNER & BLOCK, Megan B. Poetzel, JENNER & BLOCK, and Jenny Gassman-Pines, GREENE ESPEL PLLP, for WMC Mortgage, LLC.

David B. Bergman, and Elliot C. Mogul, ARNOLD & PORTER LLP, and Steven M. Phillips, ANTHONY OSTLUND BAER & LOUWAGIE P.A., for EquiFirst Corporation.

AMENDED MEMORANDUM OPINION AND ORDER

JOHN R. TUNHEIM, District Judge.

Each of these cases arises from a mortgage-backed securities trust with U.S. Bank National Association ("Trustee") as the trustee. WMC Mortgage, LLC ("WMC") and EquiFirst Corporation ("EquiFirst") are mortgage originators that sold mortgages to a trust managed by the Trustee. The Trustee alleges at least some of the mortgages sold to the trust were defective and that the originators should bear the costs to the trust of those defective mortgages.

In WMC Mortgage, LLC v. U.S. Bank National Association (Civ. No. 12-1372), WMC moves to dismiss Counts II through VI of the Trustee's Fourth Amended Counterclaims. The Trustee brings identical claims (except for the loans at issue) in its Second Amended Complaint in MASTR Asset Backed Securities Trust 2007-WMC1 v. WMC Mortgage, LLC (Civ. No. 12-1831), and WMC moves to dismiss those claims.

In MASTR Asset Backed Securities Trust 2006-HE3 v. WMC Mortgage, LLC and EquiFirst Corp. (Civ. No. 12-2149), the Trustee brings claims that are identical to those in Case Numbers 12-1372 and 12-1831, except for the trust and loans at issue. WMC moves to dismiss Counts II through VI, and EquiFirst moves to dismiss all of the Trustee's claims.

In MASTR Asset Backed Securities Trust 2006-HE3 v. WMC Mortgage, LLC and EquiFirst Corp. (Civ. No. 11-2542), WMC moves for summary judgment on the Trustee's claims that remain after WMC's motion to dismiss and previous motion for summary judgment. The Trustee moves to amend its complaint, proposing the same claims asserted in Case Numbers 12-1372, 12-1831, and 12-2149 against WMC and EquiFirst. For the reasons explained below, the Court will grant in part and deny in part the parties' motions.

BACKGROUND

Mortgage-Backed Securities Trust

"Securitization" is a financing technique which turns the right to receive money ("receivables") into present cash. Claire A. Hill, Securitization: A Low-Cost Sweetener for Lemons, 74 Wash. U. L.Q. 1061, 1067-68 (1996). The receivables - in this case mortgages - are sold into a "pool" - in this case a trust. See id. The pool can then sell interests to investors.

The loans at issue in these cases were sold to UBS Real Estate Securities Inc. ("UBS") subject to a purchase agreement between either WMC and UBS or EquiFirst and UBS. MASTR Asset Backed Sec. Trust 2006-HE3 v. WMC Mortg., LLC (" HE3-I "), Civ. No. 11-2542, 843 F.Supp.2d 996, 998 (D. Minn. 2012). UBS then assigned its rights in the loans to Mortgage Asset Securitization Transactions ("MASTR"). MASTR Asset Backed Sec. Trust 2006-HE3 v. WMC Mortg., LLC (" HE3-II "), Civ. No. 11-2542, 2012 WL 4511065, at *1 n.1 (D. Minn. Oct. 1, 2012). MASTR, along with various other entities, entered into a Pooling Services Agreement which created the trust. See id. Two trusts are at issue in these cases: (1) MASTR Asset Backed Securities Trust 2006-HE3 and (2) MASTR Asset Backed Securities Trust 2007-WMC1. Both EquiFirst and WMC sold mortgages that were pooled in MASTR Asset Backed Securities Trust 2006-HE3; EquiFirst did not sell any mortgages that were pooled into MASTR Asset Backed Securities Trust 2007-WMC1.

Purchase Agreements

This Court has previously held that the purchase agreements control WMC's and EquiFirst's obligations in these cases. HE3-I, 843 F.Supp.2d at 998-99. The parties agree that New York law applies to the interpretation of the purchase agreements.

The purchase agreements signed by WMC and EquiFirst were not identical. See id. at 999; (Civ. No. 11-2542, Decl. of Rosie Nguyencuu, Ex. 2 ("WMC Purchase Agreement"), Dec. 28, 2012, Docket No. 106; Civ. No. 12-2149, Compl., Ex. B ("EquiFirst Purchase Agreement"), Aug. 30, 2012, Docket No. 1.) The EquiFirst Purchase Agreement required the party discovering an alleged breach of representations and warranties to give notice of the breach no later than sixty days after the discovery of the alleged breach. (EquiFirst Purchase Agreement § 3.03.) The WMC Purchase Agreement required the party discovering an alleged breach of representations and warranties to give "prompt notice" of the breach but did not specify a number of days. (WMC Purchase Agreement § 3.03.)

Both purchase agreements provided that "[u]pon discovery" by the originator of "a breach of any of the foregoing representations and warranties" the originator shall give prompt written notice to the Trustee. (WMC Purchase Agreement § 3.03; EquiFirst Purchase Agreement § 3.03.) Both agreements also provide that the originator will cure the breach within sixty days of its discovery of the breach or will repurchase the defective mortgage loan. (WMC Purchase Agreement § 3.03; EquiFirst Purchase Agreement § 3.03.) The WMC Purchase Agreement provides that if a breach of the representations and warranties is not cured within sixty days of "the earlier of either discovery by or notice to" WMC of the breach, WMC must, at the Trustee's option, repurchase "all of the affected Mortgage Loans." (WMC Purchase Agreement § 3.03.) The EquiFirst Purchase Agreement provides that if a breach of the representations and warranties is not cured within sixty days of "the earlier of either discovery by or notice to" EquiFirst of the breach, EquiFirst must, at the Trustee's option, repurchase "all Mortgage Loans." (EquiFirst Purchase Agreement § 3.03.) Both purchase agreements limited the remedies "respecting a breach" to "cure, substitute, or repurchase" of an allegedly defective mortgage. HE3-I, 843 F.Supp.2d at 1001.

Each purchase agreement included an indemnification clause. The WMC Purchase Agreement provided that

[WMC] shall indemnify [the Trustee]... and hold them harmless against any losses, damages, penalties, fines, forfeitures, reasonable and necessary legal fees and related costs, judgments and other costs and expenses resulting from any claim, demand, defense or assertion based on or grounded upon, or resulting from, a breach of the Company's representations and warranties....

(WMC Purchase Agreement at § 3.03.) The EquiFirst Purchase Agreement included a separate section with the heading "Indemnification; Third Party Claims" which provided that

[EquiFirst] agrees to indemnify [the Trustee]... and hold it harmless against any and all claims, losses, damages, penalties, fines, forfeitures, legal fees and related costs, judgments, and any other costs, fees and expenses that [the Trustee] may sustain in any way related to the failure of [EquiFirst] to observe and perform its duties, obligations, and covenants... or as a result of the breach of a representation or warranty....

(EquiFirst Purchase Agreement § 5.01.)

Procedural History

The Trustee contends that the mortgages WMC and EquiFirst sold to the trusts violated their respective representations and warranties, including the representation and warranty that the loans complied with certain underwriting guidelines. ( See, e.g., Civ. No. 12-2149, First Am. Compl. ¶¶ 65-82, Nov. 30, 2012, Docket No. 27.) In the original action, MASTR Asset Backed Securities Trust 2006-HE3 v. WMC Mortgage, LLC and EquiFirst Corp. (Civ. No. 11-2542), the Trustee demanded that WMC and EquiFirst repurchase the allegedly defective loans, pursuant to the purchase agreements. WMC and EquiFirst brought motions to dismiss. See HE3-I, 843 F.Supp.2d at 997. In February 2012, the Court granted EquiFirst's motion and granted in part WMC's motion. Id. at 1001-02. The Court dismissed all the claims against both WMC and EquiFirst related to loans for which the Trustee had not provided notice and an opportunity to cure. Id. at 1000. The Court dismissed all claims against EquiFirst because it concluded that the Trustee had not given EquiFirst timely notice required under its purchase agreement which required notice within sixty days. Id. Finally, the Court dismissed the Trustee's claim for damages against WMC because it concluded that the WMC Purchase Agreement limited the remedies available to "cure, repurchase, and substitution" so the Trustee could not recover "additional remedies, including monetary damages." Id. at 1001.

WMC subsequently moved for partial summary judgment with respect to eighty of the loans at issue. HE3-II, 2012 WL 4511065, at *4. The Court granted WMC's motion and dismissed the loans because it found that the Trustee had liquidated the loans and "the only remaining remedy - specific performance" - was no longer available to the Trustee. Id. at * 6.

WMC now moves for summary judgment on the remaining nineteen loans because it has determined that the Trustee also liquidated those loans. The Trustee admits that its existing claims would be subject to an adverse judgment under the Court's prior rulings but seeks leave to amend its complaint before final judgment is entered. The Trustee also seeks to amend its claims with respect to EquiFirst for the first time since its claims against EquiFirst were dismissed in February 2012.

MASTR Asset Backed Securities Trust 2006-HE3 v. WMC Mortgage, LLC and EquiFirst Corp. (Civ. No. 12-2149) concerns the same trust, the same pool of loans, the same contract, and the same parties as Case Number 11-2542. Although Case Number 12-2149 was originally filed with the same claims as Case Number 11-2542, after the Court's ruling in HE3-II, the Trustee amended its complaint. (Civ. No. 12-2149, First Am. Compl., Nov. 30, 2012, Docket No. 27.) WMC now seeks to dismiss the Trustee's amended complaint.

Following this Court's decision in HE3-II, the Trustee brought claims against WMC in the Southern District of New York arising from a different trust. That court transferred the case to this Court and is now MASTR Asset Backed Securities Trust 2007-WMC1 v. WMC Mortgage, LLC (Civ. No. 12-1831). After the Court's ruling in HE3-II, the Trustee amended its complaint (Civ. No. 12-1831, Second Am. Compl., Nov. 30, 2012, Docket No. 54), and WMC now seeks to dismiss the amended complaint.

In June 2012 (after HE3-I was decided and the Trustee brought its claims in New York), WMC filed three declaratory judgment actions against the Trustee in this District regarding three different trusts (Civ. Nos. 12-1370, 12-1371, 12-1372). One of these three actions is currently before the Court, WMC Mortgage, LLC v. U.S. Bank National Association (Civ. No. 12-1372), and concerns the same trust as Case Number 12-1831. After the Court's ruling in HE3-II, the Trustee amended its Answer and Counterclaims for the fourth time. (Civ. No. 12-1372, Fourth Am. Answer & Countercl., Docket No. 53, Nov. 30, 2012.) WMC moves to dismiss the Trustee's counterclaims.

Claims and Allegations of Trustee's Complaints and Counterclaims

The claims now pled by the Trustee in Case Numbers 12-2149, 12-1372, and 12-1831 are practically identical. In Case Number 11-2542, the Trustee seeks to amend its complaint to recite the same claims as in the other three cases.

• Count I: Breach of Contract (Specific Performance-Representations and Warranties)
• Count II: Breach of Contract (Damages-Failure to ...

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