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Residential Funding Co., LLC v. CTX Mortg. Co., LLC

United States District Court, D. Minnesota

January 23, 2015

Residential Funding Company, LLC, Plaintiff,
CTX Mortgage Company, LLC, Defendant

For plaintiff: David Elsberg, Esq., Quinn, Emanuel, Urquhart & Sullivan, LLP, New York, NY; Donald G. Heeman, Esq., Felhaber Larson, Minneapolis, MN.

For defendant: Paul J. Hemming, Esq., Briggs and Morgan, P.A., Minneapolis, MN.


David S. Doty, United States District Judge.

This matter is before the court upon the motion to partially dismiss the amended complaint by defendant CTX Mortgage Company, LLC (CTX). Based on a review of the file, record, and proceedings herein, and for the following reasons, the court denies the motion.


This business dispute arises out of the sale of CTX-underwritten mortgage loans to plaintiff Residential Funding Company, LLC (RFC). RFC is a business engaged in the acquisition and securitization of residential mortgage loans. Am. Compl. ¶ 2. RFC acquired loans from correspondent lenders, such as CTX, who were responsible for collecting and verifying borrower information and underwriting the loan. Id. ¶ 20. Once underwritten, loans were sold to RFC and then distributed in pools to be sold into residential mortgage-backed securitization (RMBS) trusts or to whole loan purchasers. Id. ¶ 3.

CTX and RFC entered into a " Client Contract" (Contract), which incorporated by reference the " Client Guide." These documents collectively formed the parties' agreement (Agreement). See, e.g., id Ex. A, at 1. Various versions of the Client Guide were in effect at different times relevant to the instant dispute. See Am. Compl. ¶ 18. Pursuant to the Contract, CTX made several representations and warranties regarding the loans sold to RFC. See id. ¶ 24. Relevant to this motion, CTX represented and warranted that it " will comply with all provisions of this Client Guide and the Program Documents, and will promptly notify [RFC] of any occurrence, act, or omission regarding [CTX], the Loan, the Mortgaged Property or the Mortgagor of which [CTX] has knowledge, which ... may materially affect [CTX], the Loan, the Mortgaged Property or the Mortgagor." Am. Compl. ¶ 24b; id. Ex. B-1, § A201(M). Failure to comply with such representations and warranties constituted an " Event of Default" under the Agreement. See id. ¶ 26. Further, the Agreement specified the remedies available to RFC if an Event of Default occurred, including CTX's obligation to indemnify RFC against liabilities resulting from such events. See id. ¶ 29.

CTX and RFC operated pursuant to the Agreement until May 2012. See id. ¶ 2. Over time, many of the loans sold by CTX went into default or became delinquent, resulting in substantial losses to RFC. Id. ¶ 48. CTX repurchased some defective loans pursuant to the Agreement. Id. ¶ 61. RFC was sued in numerous actions stemming from defective loans it had purchased from CTX. See id. ¶ 65. RFC filed for Chapter 11 bankruptcy protection on May 14, 2012. See ¶ 56. On December 17, 2013, the bankruptcy plan became effective. Id. ¶ 82.

On December 15, 2013, RFC filed suit against CTX in state court and CTX timely removed. On August 15, 2014, RFC filed an amended complaint, alleging claims for (1) breach of contract and (2) indemnification. CTX moves to dismiss RFC's breach-of-contract claim only to the extent it is based on loans sold before May 14, 2006.


I. Standard of Review

To survive a motion to dismiss for failure to state a claim, " 'a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009) ( quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)). " A claim has facial plausibility when the plaintiff [has pleaded] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678 (citing Bell A. Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Although a complaint need not contain detailed factual allegations, it must raise a right to relief above the speculative level. Twombly, 550 U.S. at 555. " [L]abels and conclusions or a formulaic recitation of the elements of a cause of action" are not sufficient to state a claim. Iqbal, 556 U.S. at 678 (citation and internal quotation marks omitted).

The court does not consider matters outside the pleadings under Rule 12(b)(6). Fed.R.Civ.P. 12(d). The court may, however, consider matters of public record and materials that are " necessarily embraced by the pleadings." Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999) (citation and internal quotation marks omitted). Here, the Contract, Client Guide excerpts, and list of loans submitted by RFC are attached to the amended complaint and are properly before the court.

II. Statute of Limitations

CTX argues that much of the breach-of-contract claim is barred by the statute of limitations. Specifically, CTX argues that any portion of the claim based on loans sold or assigned to RFC before May 14, 2006 - six years before RFC's Chapter 11 filing - is untimely due to the applicable six-year statute of limitations. RFC acknowledges that this court has held in nearly identical cases that claims relating to loans sold or assigned prior to May 14, 2006, are untimely. See Residential Funding Co. v. Mortgage Access Corp., No. 13-3499, 2014 WL 3577403, at *5 (D. Minn. July 21, 2014); Residential Funding Co. v. Americash, No. 13-3460, 2014 WL 3577312, *5 (D. Minn. July 21, 2014). RFC argues that this case is different because it has specifically pleaded that CTX breached its continuing obligation to inform RFC of loan defects. The court agrees.

RFC alleges that, pursuant to Client Guide Section A201(M), CTX undertook a continuing obligation to " promptly notify RFC of any act or omissions which might impact the Loan, the Mortgaged Property, or the Mortgagor." Am. Compl. ¶ 20. RFC further alleges that CTX continually breached that obligation " by failing to inform RFC of the loan defects." Id. This allegation is sufficient to allege a continuing breach, and RFC is entitled to discovery to explore whether and when CTX learned of the alleged loan defects. As a result, dismissal of RFC's claim based on loans sold before May 14, 2006, is not warranted.[1]


Accordingly, based on the above, IT IS HEREBY ORDERED that Defendant's partial motion to dismiss the amended complaint [ECF No. 37] is denied.

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