United States District Court, D. Minnesota
David Elsberg and Peter E. Calamari, QUINN EMANUEL URQUHART & SULLIVAN, LLP; Donald G. Heeman, Jessica J. Nelson, and David L. Hashmall, FELHABER LARSON; Jeffrey A. Lipps, CARPENTER LIPPS & LELAND LLP, for plaintiff.
James M. Jorissen, Eldon J. Spencer, Ernest F. Peake, and Patrick J. Lindmark, LEONARD, O'BRIEN, SPENCER, GALE & SAYRE, LTD., for defendant The Mortgage Outlet, Inc.
Philip R. Stein and Shalia M. Sakona, BILZIN SUMBERG BAENA PRICE & AXELROD LLP; Janine W. Kimble and Erin Sindberg Porter, GREENE ESPEL PLLP, for defendant Golden Empire Mortgage, Inc.
William C. Mayberry, Jason D. Evans, and T. Richmond McPherson, III, MCGUIRE WOODS, LLP; Kelly G. Laudon and Mark A. Jacobson, LINDQUIST & VENNUM LLP, for defendant Branch Banking & Trust Co.
Peter L. Loh and Randy D. Gordon, GARDERE WYNNE SEWELL LLP; Erin Sindberg Porter and Jeanette M. Bazis, GREENE ESPEL PLLP, for defendant iserve Residential Lending, LLC.
PATRICK J. SCHILTZ, District Judge.
Before filing for bankruptcy in May 2012, plaintiff Residential Funding Company, LLC ("RFC") was in the business of acquiring and securitizing residential mortgage loans. These lawsuits are just a few of the dozens of lawsuits that RFC has filed against various entities from which it purchased loans. In all of these lawsuits, RFC asserts breach-of-warranty and indemnification claims - alleging, in essence, that the defendants breached representations and warranties regarding the quality of the loans that they sold to RFC.
This matter is before the Court on defendants' motions to dismiss RFC's amended complaints. For the reasons explained below and on the record at the hearing on defendants' motions, the motions are granted in part and denied in part. Specifically, the motions are granted with respect to RFC's breach-of-warranty claims to the extent that those claims are based on loans that RFC purchased before May 14, 2006. The motions are denied in all other respects.
According to the amended complaints, RFC was in the business of acquiring loans from "correspondent lenders" (such as defendants) and distributing those loans - either by pooling the loans together to sell into residential mortgage-backed securitization ("RMBS") trusts or by selling them to whole-loan purchasers. Over a number of years, RFC purchased over 700 loans from defendant Mortgage Outlet, Inc.; over 240 loans from defendant Golden Empire Mortgage, Inc.; over 350 loans from defendant Branch Banking & Trust Co.; and over 200 loans from defendant iserve Residential Lending, LLC.
RFC required the correspondent lenders to abide by certain contractual representations and warranties designed to protect RFC from the risk that fraud, legal violations, or other factors would reduce the value of the loans. RFC alleges that defendants breached these representations and warranties with respect to many of the loans that they sold to RFC. According to RFC, the delinquency and default rates for those loans exceeded what would be normally be expected, and RFC's internal reviews revealed that a substantial percentage of the loans were defective.
Beginning in 2008, RFC was sued by investors in the RMBS trusts and by the whole-loan purchasers. Those plaintiffs alleged that the loans purchased by RFC and then sold into RMBS trusts or sold to whole-loan purchasers were defective and riddled with fraud and compliance problems. As a result of those lawsuits, RFC and certain of its affiliates filed for bankruptcy on May 14, 2012. At that point, RFC had already repurchased millions of dollars' worth of allegedly defective loans from the RMBS trusts and from the whole-loan purchasers. RFC eventually resolved its RMBS-related liabilities through a global settlement in the bankruptcy case. That settlement became part of a liquidating Chapter 11 plan, which was confirmed by the bankruptcy court on December 11, 2013. Shortly afterward, RFC filed these lawsuits. A few days later, on December 17, 2013, the ResCap Liquidating Trust succeeded to all of RFC's rights and interests under RFC's contracts with defendants.
A. Standard of Review
In reviewing a motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6), the court must accept as true all of the factual allegations in the complaint and draw all reasonable inferences in the plaintiff's favor. Aten v. Scottsdale Ins. Co., 511 F.3d 818, 820 (8th Cir. 2008). Although the factual allegations in the complaint need not be detailed, they must be sufficient to "raise a right to relief above the speculative level...." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The complaint must "state a claim to relief that is plausible on its face." Id. at 570. In assessing the sufficiency of the complaint, the court may disregard legal conclusions that are couched as factual allegations. See Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).
Ordinarily, if the parties present, and the court considers, matters outside of the pleadings, a motion to dismiss must be treated as a motion for summary judgment. Fed.R.Civ.P. 12(d). But the court may consider materials that are necessarily embraced by the complaint, as well as exhibits attached to the complaint, without converting the motion into one for summary judgment. Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003). The court may ...