United States District Court, D. Minnesota
In re: RFC and ResCap Liquidating Trust Litigation.
Ark-La-Tex Financial Services, LLC, No. 13-cv-3448 (DWF/TNL) Residential Funding Company, LLC This document relates to: Residential Funding Company, LLC
Academy Mortgage Corporation, No. 13-cv-3451 (SRN/BRT) Residential Funding Company, LLC
First California Mortgage Company, No. 13-cv-3453 (SRN/JJK) Residential Funding Company, LLC
Community West Bank, N.A., No. 13-cv-3468 (JRT/JJK) Residential Funding Company, LLC and ResCap Liquidating Trust
Provident Funding Associates, L.P., No. 13-cv-3485 (SRN/TNL) Residential Funding Company, LLC
E*Trade Bank, No. 13-cv-3496 (JNE/HB) Residential Funding Company, LLC
PNC Bank, N.A., No. 13-cv-3498 (JRT/BRT) Residential Funding Company, LLC
Branch Banking & Trust Company, No. 13-cv-3513 (PJS/BRT) Residential Funding Company, LLC
T.J. Financial, Inc., No. 13-cv-3515 (SRN/SER) Residential Funding Company, LLC
Universal American Mortgage Company, LLC, No. 13-cv-3519 (SRN/JSM) Residential Funding Company, LLC
BMO Harris Bank, N.A. d/b/a M&I Bank, FSB, No. 13-cv-3523 (JNE/FLN) Residential Funding Company, LLC
Wells Fargo Financial Retail Credit, Inc., No. 13-cv-3525 (SRN/JSM). Residential Funding Company, LLC and ResCap Liquidating Trust
Standard Pacific Mortgage, Inc., No. 13-cv-3526 (JRT/JJK) Residential Funding Company, LLC
iserve Residential Lending, LLC, No. 13-cv-3531 (PJS/TNL) Residential Funding Company, LLC
CTX Mortgage Company, LLC, No. 14-cv-1710 (DSD/TNL) Residential Funding Company, LLC
American Mortgage Network, LLC., No. 14-cv-1760 (PJS/TNL) ResCap Liquidating Trust
Freedom Mortgage Corporation, No. 14-cv-5101 (MJD/HB) Residential Funding Company, LLC
Homestead Funding Corp., No. 13-cv 3520 (JRT/HB)
AMENDED MEMORANDUM OPINION AND ORDER
SUSAN RICHARD NELSON, District Judge.
Before the Court is the Motion to Strike, or in the alternative, for Judgment on the Pleadings as to Ten of Defendants' Affirmative Defenses [Doc. No. 148] filed by Residential Funding Company, LLC ("RFC") and ResCap Liquidating Trust ("the Trust") (collectively, "Plaintiffs"). This motion was brought against the above-captioned Defendants (collectively, "Defendants"). For the reasons stated herein, Plaintiffs' motion is granted in part and denied without prejudice in part.
These lawsuits arise out of Defendants' sale of allegedly defective mortgage loans to RFC. (First Am. Compl. ¶ 1.) Prior to May 2012, RFC was "in the business of acquiring and securitizing residential mortgage loans." (Id. ¶ 2.) RFC acquired the loans from "correspondent lenders, " such as Defendants, who were responsible for collecting and verifying information from the borrower and underwriting the loans. (Id. ¶¶ 3, 20.)
RFC alleges that its relationship with each Defendant was governed by a Seller Contract that incorporated the terms and conditions of the RFC Client Guide (collectively, "the Agreements"). (Id. ¶¶ 17-18 & Exs. A, B; Citation App'x ¶¶ 7-8, Ex. A to Alden Decl. [Doc. No. 151-1].) Those Agreements, or excerpts thereof, are attached to the First Amended Complaint as Exhibits A and B, respectively. (See also GMAC RFC Client Guide, Version 1-06-G01, 3/13/06, Ex. B to Alden Decl. [Doc. No. 151-2].) Pursuant to the Agreements, Defendants made many representations and warranties regarding the loans, including: (1) Defendants' origination and servicing of the loans were "legal, proper, prudent and customary;" (2) Defendants would "promptly notify" RFC of any material acts or omissions regarding the loans; (3) all loan-related information that Defendants provided to RFC was "true, complete and accurate;" (4) all loan documents were "genuine" and "in recordable form;" (5) all loan documents were in compliance with local and state laws; (6) there was "no default, breach, violation or event of acceleration" under any note transferred to RFC; (7) each loan was "originated, closed, and transferred" in compliance with all applicable laws; (8) none of the loans were "high-cost" or "high-risk;" (9) there were no existing circumstances that could render the loans an "unacceptable investment, " cause the loans to become "delinquent, " or "adversely affect" the value of the loans; (10) the loans were underwritten in compliance with the Client Guide; (11) appropriate appraisals were conducted when necessary; (12) the market value of the premises was at least equal to the appraised value stated on the loan appraisals; and (13) there was no fraud or misrepresentation by the borrower or Defendants regarding the origination or underwriting of the loans. (First Am. Compl. ¶ 24.)
RFC alleges it considered these representations and warranties to be material, and any failure to comply constituted an "Event of Default" under the Agreements (Id. ¶¶ 25-26.) It retained sole discretion to declare an Event of Default, and the available remedies include repurchase of the defective loan, substitution of another loan, or indemnification against liabilities resulting from the breach. (Id. ¶¶ 29-33.) RFC alleges that the Agreements do not, however, require that RFC provide Defendants with notice or an opportunity to cure, or demand repurchase within a particular amount of time. (Id.)
In the various operative Complaints, RFC alleges that, pursuant to these Agreements, it purchased from each Defendant hundreds or, in some cases, thousands of mortgage loans, with original principal balances ranging from several million dollars to over $8 billion. See, e.g., Am. Compl. ¶ 4, Residential Funding Co., LLC v. Ark-La-Tex Fin. Servs., LLC, No. 13-cv-3448 (DWF/TNL) [Doc. No. 29]; Am. Compl. ¶ 4. RFC then either pooled those loans to sell into residential mortgage-backed securitization ("RMBS") trusts or sold them to whole loan purchasers. (First Am. Compl. ¶¶ 3, 36.)
RFC alleges, however, that, in many instances, Defendants violated their representations and warranties. (Id.) According to RFC, many of the loans eventually defaulted or became delinquent and sustained millions of dollars in losses. (Id. ¶ 39.) After conducting an internal review, RFC determined that hundreds of loans sold by each Defendant violated the Agreements and resulted in an Event of Default. (Id. ¶ 41.) The types of alleged defects included income and employment misrepresentation, owner occupancy misrepresentation, appraisal misrepresentations or inaccuracies, undisclosed debt, insufficient credit scores, lien position, and/or missing or inaccurate documents, among others. (Id. ¶ 42.) By May 2012, RFC had spent millions of dollars repurchasing defective loans, including loans sold to it by Defendants. (Id. ¶ 61.)
On May 14, 2012, RFC filed for Chapter 11 bankruptcy in the Bankruptcy Court for the Southern District of New York. (Id. ¶ 62); In re Residential Capital, LLC, No. 12-12020 (MG) (Bankr. S.D.N.Y.). According to RFC, hundreds of proofs of claim related to allegedly defective mortgage loans, including those sold to RFC by Defendants, were filed in connection with the bankruptcy proceedings. (First Am. Compl. ¶ 63.) The Bankruptcy Court eventually approved a global settlement that provided for resolution of the RMBS-related liabilities for more than $10 billion. (Id. ¶ 67.) The Bankruptcy Court confirmed the Chapter 11 Plan on December 11, 2013, and the Plan became effective on December 17, 2013. (Id.); Findings of Fact at 1, In re Residential Capital, LLC, No. 12-12020 (MG) (Bankr. S.D.N.Y. Dec. 11, 2013) [Doc. No. 6066]. Under the Plan, the Trust succeeded to RFC's rights and interests, including its claims against Defendants. (First Am. Compl. ¶ 67.)
Accordingly, RFC and the Trust filed these lawsuits, asserting two causes of action against each Defendant. In Count One, a claim for breach of contract, based on alleged breaches of representations and warranties, RFC alleges that, although it "complied with all conditions precedent, if any, and all of its obligations under the Agreement[s]" (id. ¶ 72), Defendants materially breached the representations and warranties they made to RFC because the mortgage loans they sold to RFC did not comply with those representations and warranties (id. ¶¶ 71, 73). RFC asserts these material breaches constitute Events of Default under the Agreements and have resulted in losses and liabilities related to the defective loans, as well as losses associated with defending the lawsuits and proofs of claim that stem from those loans. (Id. ¶¶ 74-75.) In Count Two, RFC alleges it is entitled to indemnification from Defendants for those losses and liabilities. (Id. ¶¶ 77-80.)
This motion challenges ten of the affirmative defenses asserted in the Answers filed by Defendants. Plaintiffs seek to strike or, alternatively, dismiss the following affirmative defenses: (1) reliance- and knowledge-based defenses that RFC either knew of Defendants' breaches of representations or warranties at the time of entering into the parties' contracts or did not rely on Defendants' representations or warranties; (2) equitable defenses of unclean hands, laches, and in pari delicto; and (3) defenses based on the satisfaction of conditions precedent prior to imposing upon Defendants liability for breach of contract or indemnification. (Pls.' Mem. Supp. Mot. to Strike at 2-3 [Doc. No. 150].)
Defendants assert that Plaintiffs' motion should be denied for three reasons. First, Defendants contend that the motion improperly relies on misleading excerpts from the Client Guide and information from outside the pleadings. (Defs.' Opp'n Mem. at 1 [Doc. No. 253].) Furthermore, they assert that the motion improperly discounts the allegations in Defendants' Answers and misconstrues the parties' multiple agreements (which, for some Defendants, include multiple versions of the Client Guide as well as commitment letters and certificates). (Id.) Second, Defendants argue that Plaintiffs are required to show that they would be prejudiced if Defendants were permitted to develop the ten affirmative defenses in dispute. (Id. at 2) (citing Connell v. City of New York, 230 F.Supp.2d 432, 438 (S.D.N.Y. 2002)). Third, Defendants contend that all of the affirmative defenses raise questions of fact or law that are not properly stricken at this stage in the proceedings. (Id.)
A. Standard of Review
Federal Rule of Civil Procedure 12(f) permits the Court to "strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." As this Court has noted, a motion to strike a defense should be denied if the defense "is sufficient as a matter of law or if it fairly presents a question of law or fact which the court ought to hear." U.S. Bank Nat'l Ass'n v. Educ. Loans Inc., No. 11-cv-1445 (RHK/JJG), 2011 WL 5520437, at *5 (D. Minn. Nov. 14, 2011) (denying motion to strike an estoppel defense to a breach of contract claim). Because Rule 12(f) relief is considered an "extreme measure, " motions under Rule 12(f) are infrequently granted. E.E.O.C. v. Product Fabricators, Inc., 873 F.Supp.2d 1093, 1097 (D. Minn. 2012) (citing Stanbury Law Firm, P.A. v. Internal Revenue Serv., 221 F.3d 1059, 1063 (8th Cir. 2000); Daigle v. Ford Motor Co., 713 F.Supp.2d 822, 830 (D. Minn. 2010)). Under the permissive language of the rule, however, the Court has "liberal discretion" to strike, Stanbury, 221 F.3d at 1063, and a motion to strike should be granted "if the result is to make a trial less complicated or otherwise streamline the ultimate resolution of the action." Daigle, 713 F.Supp.2d at 830. While the non-movant's well-pleaded facts are admitted as true on a motion to strike, the district judge need not similarly admit conclusions of law, Barnidge v. United States, 101 F.2d 295, 297 (8th Cir. 1939), or conclusions drawn from the facts. 5C Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1380 at 403-04 (3d ed. 2004). Matters outside the pleadings are generally not considered. Id. at 404.
As an alternative to moving to strike under Rule 12(f), Plaintiffs move for partial judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c). Rule 12(c) provides that a party may move for judgment on the pleadings after the pleadings are closed, but early enough not to delay trial, where "no material issue of fact remains to be resolved and the movant is entitled to judgment as a matter of law." Faibisch v. Univ. of Minn., 304 F.3d 797, 803 (8th Cir. 2002). Courts therefore apply to Rule 12(c) motions the same standard of review applicable to Rule 12(b)(6) motions to dismiss. Ginsburg v. InBev NV/SA, 623 F.3d 1229, 1233, n.3 (8th Cir. 2010). The court accepts as true all facts pleaded by the non-moving party and grants all reasonable inferences from the pleadings in the non-moving party's favor. Faibisch, 304 F.3d at 803 (citing United States v. Any & All Radio Station Transmission Equip., 207 F.3d 458, 462 (8th Cir. 2000)). As with a Rule 12(f) motion, "[w]hen considering a motion for judgment on the pleadings (or a motion to dismiss under Fed.R.Civ.P. 12(b)(6)), the court generally must ignore materials outside the pleadings, but it may consider some materials that are part of the public record or do not contradict the complaint, ' as well as materials that are necessarily embraced by the pleadings.'" Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999) (quoting Missouri ex rel. Nixon v. Coeur D'Alene Tribe, 164 F.3d 1102, 1107 (8th Cir.); Piper Jaffray Cos. v. National Union Fire Ins. Co., 967 F.Supp. 1148, 1152 (D. Minn. 1997)). See also 5B Wright & Miller, supra, §1357 at 376 (court may consider "matters incorporated by reference or integral to the claim, items subject to judicial notice, matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint whose authenticity is unquestioned").
Defendants argue that Plaintiffs cannot prevail under the demanding standard required to strike an affirmative defense under Rule 12(f). (Defs.' Opp'n Mem. at 5 [Doc. 253].) In addition, they contend that Plaintiffs have failed to establish the likely existence of prejudice, which, Defendants argue, is required before affirmative defenses may be stricken under Rule 12(f). (Id.) (citing Collette v. Zenith Dredge Co., 11 F.R.D. 594, 595 (D. Minn. 1951); Scribner v. McMillan, No. 06-cv-4460 (DWF/RLE), 2007 WL 685048, at *5 (D. Minn. Mar. 2, 2007)). Finally, Defendants argue that under either Rule 12(c) or 12(f), Plaintiffs improperly rely on material outside the pleadings.
The Court finds Plaintiffs' motion appropriate under Rule 12(f). Since the 1948 amendment of Rule 12(f), that provision has served as an acceptable remedy to "dispose of a wholly insufficient defense at the pleading stage" and a plaintiff need not instead move to dismiss an answer under Rule 12(c). 5C Wright & Miller, supra, §1381 at 408-09; see also Aaron v. Martin, No. 4:11CV1661 FRB, 2013 WL 466242, at *2 (E.D. Mo. Feb. 7, 2013) (noting that the federal rules "provide two ways for a party to challenge the sufficiency of an affirmative defense: a motion for judgment on the pleadings under Rule 12(c), or a motion to strike under Rule 12(f)"). Rule 12(f) is the "primary procedure for objecting to an insufficient defense." 5C Wright & Miller, supra, § 1380 at 390. As to whether a plaintiff moving to strike an affirmative defense must demonstrate prejudice, courts have found that where a challenged defense fails as a matter of law or is immaterial to the matter, the resources and time expended to counter such a defense constitute per se prejudice. See Panzella v. Cnty. of Nassau, No. 13-CV-5640 (SFJ) (SIL), 2015 WL 224967, at *2 (E.D.N.Y. Jan. 15, 2015) (requiring the plaintiff to defend against immaterial defenses would be prejudicial to the plaintiff); Specialty Minerals, Inc. v. Pluess-Staufer AG, 395 F.Supp.2d 109, 114 (S.D.N.Y. 2005) (striking unclean hands defense and finding that the increased time and expense to try the issue would constitute prejudice to the plaintiff). The Court finds that similar prejudice exists here. Therefore, finding that Rule 12(f) is a procedurally proper means of disposing of affirmative defenses, the Court does not address Plaintiffs' alternative basis for the motion under Rule 12(c).
As to the documents that the Court may properly consider on a Rule 12 motion, the materials in question are a particular complete version of the Client Guide (Ex. B to Alden Decl. [Doc. No. 151-2]), and excerpts from the Client Guides (Exs. B-A200 to Alden Decl. [Doc. No. 151-3 to 151-34]), as well as the Citation Appendix, which identifies the specific provisions at issue in the underlying complaints and answers. (Citation App'x, Ex. A to Alden Decl. [Doc. No. 151-1].) As documented in the Citation Appendix, "Client Guides" were attached to the underlying complaints. (See id. ¶ 2.) In general, courts may consider a contract on a Rule 12 motion because contracts on which a claim is based are embraced by the pleadings. Gorog v. Best Buy Co., 760 F.3d 787, 791 (8th Cir. 2013); see also Stahl v. United States Dep't of Agric., 327 F.3d 697, 700 (8th Cir. 2003) (stating that in a Rule 12 motion in a case involving a contract, the court could consider the contract documents). Defendants, however, argue that many of the Client Guide versions cited in the Citation Appendix were not attached to the operative complaints. (Defs.' Opp'n Mem. at 12-13 [Doc. No. 253].) Where reference to the Client Guides may be necessary to resolve a particular ground on which the instant motion is based, the Court addresses this below in its legal analyses. To the extent that Defendants challenge the Court's consideration of the Citation Appendix, it is properly before the Court. The Citation Appendix merely provides citations to specific paragraphs in the pleadings themselves and does not contradict the pleadings.
Finally, for purposes of the instant motion, based on the choice-of-law provisions in the parties' Agreements, it appears that Minnesota and New York law apply. (Citation App'x ¶ 15, Ex. A to Alden Decl. [Doc. No. 151-1]) (citing applicable choice-of-law provisions).
B. Reliance- and Knowledge-Based Defenses
As noted, Plaintiffs seek to strike six defenses that essentially assert that (1) RFC did not rely on Defendants' representations or warranties, or (2) RFC knew of Defendants' breaches of representations and warranties when it entered into the parties' contracts. (Pls.' Mem. Supp. Mot. to Strike at 2-3 [Doc. No. 150].) Specifically, Plaintiffs identify the following assertions of Defendants that Plaintiffs' claims are barred, in whole or in part, by the following reliance- and knowledge-based defenses: (1) "the doctrine of assumption of the risk" (Citation App'x ¶ 8, Ex. A to Alden Decl. [Doc. No. 151-1]); (2) "because [RFC] would have purchased the loans... even if it knew the alleged deficiencies in the loan documents, and any alleged deficiencies were not material." (id. ¶ 9); (3) "because [RFC] did not rely on the representations and warranties on which Plaintiff[s] [are] suing, and to the extent [RFC] did rely on such representations and warranties, [RFC]'s reliance was not reasonable or justified." (id. ¶ 10); (4) by "the doctrine of estoppel" (id. ¶ 11); (5) by "the doctrines of consent, acquiescence, and/or ratification" (id. ¶ 12); and (6) "because [RFC] failed to perform adequate due diligence regarding the underlying mortgage loan sales" (id. ¶ 13).
Article A200 of the Client Guide states that "the Client is fully liable for any misrepresentation or breach of warranty regardless of whether it or GMAC-RFC actually had, or reasonably could have been expected to obtain, knowledge of the facts giving rise to such misrepresentation or breach of warranty." (Ex. B to Alden Decl. [Doc. No. 131-2 at 37].) Also in Article A200, Defendants "acknowledge[d] that GMAC-RFC purchase[d] Loans in reliance upon the accuracy and truth of the Client's warranties and representations and upon the Client's compliance with the agreements, requirements, terms and conditions set forth in the Client Contract and this Client Guide." (Id.)
In opposition to Plaintiffs' motion, Defendants argue that their defenses based on knowledge and reliance properly apply to Plaintiffs' indemnification claim, pointing to other language in the Client Guide that supports their defenses. (Defs.' Opp'n Mem. at 17 [Doc. No. 253].) Specifically, Defendants note that language in the Client Guide states that Defendants would indemnify Plaintiffs "for any losses from any claim, demand, defense or assertion against or involving [RFC] based on or grounded upon, or resulting from such misstatement or omission or a breach of any representation, warranty or obligation made by [RFC] in reliance upon such misstatement or omission.'" (Id.) (citing PNC First Am. Compl. ¶ 33) (quoting Client Guide A202(II)). In addition, Defendants contend that Plaintiffs improperly group together the distinct defenses of ratification, acquiescence, and consent among the reliance- and knowledge-based defenses that they move to strike. (Id.) Furthermore, Defendants contend that they are entitled to plead reliance- and knowledge-based defenses against Plaintiffs' breach of warranty claim. (Id. at 19.)
The Court finds that questions of fact preclude relief under Rule 12(f) for certain reliance- and knowledge-based defenses. Defendants assert that many Client Guide versions cited in Plaintiff's Citation Appendix were not attached to the operative complaints and that newly produced versions of the Client Guide supplement the excerpts attached to the Complaint. (Defs.' Opp'n Mem. at 12-13 [Doc. No. 253].) Moreover, Plaintiffs acknowledge that at least one Defendant has not received all versions of the Client Guide. (Pls.' Mem. Supp. Mot. to Strike at 7, n.3 [Doc. No.150].) In addition, Defendants assert that "Plaintiffs also fail to address that the terms of the Client Guide are altered and superseded by any conflicting terms in the parties' seller contracts and/or commitment letters, which are ignored in both Plaintiffs' complaints and their motion." (Defs.' Opp'n Mem. at 13 [Doc. No. 253].) Finally, with respect to estoppel, Defendants note that the Court will be required to examine RFC's conduct. (Id. at 25) (citing Multi-Tech Sys., Inc. v. Floreat, Inc., No. 01-cv-1320 (DDA/FLN), 2002 WL 432016, at *4 (D. Minn. Mar. 18, 2002)) (stating that equitable estoppel is a defense to a contract when the defendant "has altered his position for the worse in good faith reliance upon the conduct of the party seeking to enforce the contract.") Given the limited development of the record at this point, the Court is unable to rule that no genuine issues of fact remain in dispute as to defenses based on knowledge and reliance. Accordingly, the Court denies without prejudice Plaintiffs' motion to strike these particular affirmative defenses.
C. Assumption of the Risk
In addition to arguing that assumption of the risk should be stricken as a reliance- and knowledge-based defense, Plaintiffs also argue that it should be stricken for the independent reason that it applies only to claims sounding in tort, not in contract. (Pls.' Mem. Supp. Mot. to Strike at 12 [Doc. No. 150].)
As Plaintiffs correctly note, assumption of the risk is a defense to a tort claim and is not applicable to breach of contract or indemnification claims. See Leawood Bancshares Inc. v. Alesco Preferred Fundings X, Ltd., No. 10 Civ. 5637 (JSR), 2011 WL 1842295, at *4 (S.D.N.Y. May 9, 2011) (stating that, as a matter of law, assumption of the risk is not a proper defense to a breach of contract action); Goblirsch v. Western Land Roller Co., 246 N.W.2d 687, 691 (Minn. 1976) (referring to the "tort defense of assumption of risk"); Hagberg v. Colonial & P. Frigidways, Inc., 157 N.W.2d 33, 37 (Minn. 1968) (finding that defenses such as contributory negligence and assumption of risk were not available where the action was not an action for common-law negligence). While Defendants cite Powers v. Siats, 70 N.W.2d 344, 349-50 (Minn. 1955), arguing that assumption of the risk may arise by contract or by conduct of the promisor, Powers did not involve an "assumption of the risk" defense. Instead, the court found that the defendant could not assert an "impossibility of performance" defense because the defendant learned of the impossibility in time to rectify the situation but failed to do so. Id. at 349. Moreover, as Plaintiffs note, the court in Powers relied on Corbin on Contracts, which states that the assumption of risk defense "is not so popular in the law of torts that it should be imported into the field of contract." 4-14 Corbin on Contracts § 14.3 (2014). The Court agrees with Plaintiffs that "[c]ontracting parties may assume' risks by allocating them, but that is a question of contract interpretation, not an assumption of risk' defense." (Pls.' Mem. Supp. Mot. to Strike at 14 [Doc. No. 334]) (citing 27 Williston on Contracts § 70:80). Moreover, the Court notes that three Defendants in this consolidated action, and a fourth in a similar but unconsolidated action in this District, have stipulated to dismiss their assumption of risk defense for this reason. See Residential Funding Co. v. Standard P. Mortg., Inc., No. 13-cv-3526 (D. Minn. Dec. 15, 2014), Stipulation of Dismissal [Doc. No. 125]; Residential Funding Co. v. T.J. Fin., Inc., No. 13-cv-3515 (D. Minn. Dec. 15, 2014), Stipulation of Dismissal [Doc. No. 99]; Residential Funding Co. v. Univ. Am. Mortg. Co., 13-cv-3519 (D. Minn. Dec. 15, 2014), Stipulation of Dismissal [Doc. No. 111]; Residential Funding Co. v. Homestead Funding Corp., No. 13-cv-3520 (D. Minn. Feb. 11, 2015), Stipulation of Dismissal [Doc. No. 85].
For all of these reasons, the Court grants Plaintiffs' motion to strike the assumption of the risk defense because it is inapplicable in a breach of contract action.
D. Consent, Acquiescence, and Ratification
Among the reliance- and knowledge-based defenses that Plaintiffs move to strike are any defenses based on the doctrines of consent, acquiescence, and ratification. Plaintiffs argue that these defenses are barred as a matter of law based on the unambiguous provisions of the parties' agreements (Pls.' Mem. Supp. Mot. to Strike at 6-7 [Doc. No. 150]), and are generally inapplicable. (Pls.' Reply Mem. at 9, n.12 [Doc. No. 334].)
These three doctrines are often used interchangeably or in an overlapping fashion, with each generally requiring the element of full knowledge of the party against whom the doctrines are to be applied. For example, under both New York and Minnesota law, the defense of ratification requires that the entity ratifying the act in question have full knowledge of the material facts giving rise to the transaction. Strauss v. Title Guar. & Trust Co., 29 N.E.2d 462 (1940) ("Ratification is the act of knowingly giving sanction or affirmance to an act that would otherwise be unauthorized and not binding."); Anderson v. First Nat'l Bank of Pine City, 228 N.W.2d 257, 259 (Minn. 1975) ("Ratification occurs when one, having full knowledge of all the material facts, confirms, approves, or sanctions, by affirmative act or acquiescence, the originally unauthorized act of another...."). The doctrine of acquiescence similarly requires the element of knowledge of the party against whom the doctrine is applied:
When a party with full knowledge, or with sufficient notice of his rights and of all the material facts, freely does what amounts to a recognition or adoption of a contract or transaction as existing, or acts in a manner inconsistent with its repudiation, and so as to affect or interfere with the relations and situation of the parties, he acquiesces in and assents to it and is equitably estopped from impeaching it, although it was originally void or voidable.
Corning Glass Works v. S. New England Tel. Co., 674 F.Supp. 999, 1013 (W.D.N.Y. 1987) (quoting Rothschild v. Title Guar. & Trust ...