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Ally Bank v. Lenox Financial Mortgage Corp.

United States District Court, D. Minnesota

March 2, 2017

Ally Bank, Plaintiff,
Lenox Financial Mortgage Corporation, Defendant.

          Thomas M. Schehr, Esq., Jared D. Kemper, Esq. and Dykema Gossett, PLLC, Minneapolis, MN, counsel for plaintiff.

          W. Anders Folk, Esq., Sharon R. Markowitz, Esq. and Stinson Leonard Street LLP, Minneapolis, MN, counsel for defendant.


          David S. Doty, Judge.

         This matter is before the court upon the motion to dismiss by defendant Lenox Financial Mortgage Corporation. Based on a review of the file, record, and proceedings herein, and for the following reasons, the motion is denied.


         This contract dispute arises out of the sale of ten mortgage loans by Lenox to plaintiff Ally Bank.[1] Am. Compl. ¶ 1. Lenox and Ally entered into two agreements, the 2004 contract and the 2008 contract, under which Lenox sold Ally residential mortgage loans. Id. Nine of the loans were sold pursuant to the 2004 contract, and one loan was sold under the 2008 contract. See id. ¶¶ 28, 47, 65, 84, 103, 122, 141, 160, 178, 197. Both of the agreements incorporated the terms of the GMAC Bank Correspondent Lending Manual, which contained representations and warranties concerning the nature and quality of the loans.[2] Id. ¶¶ 12-13. Under the terms of the correspondent manual, Lenox represented, among other things, that any loan sold to Ally would meet Ally's, Fannie Mae's, and Freddie Mac's underwriting requirements and would be based on proper appraisals. Id. ¶¶ 14-16; id. Ex. 3, Correspondent Manual § XIII.b. The correspondent manual enumerated specific unacceptable appraisal practices. See Am. Compl. ¶ 16; id. Ex. 3 § VIII(9-1). Under the terms of the agreement, “[Ally] may give [Lenox] written notice as to any loan purchased ..., which [Ally] discovers and deems, in its sole discretion, to fail to conform with each and every requirement, representation, and warranty of the Correspondent Agreement and the Correspondent Manual.” Am. Compl. Ex. 3 § XIV.a. On receipt of such notice, “[Lenox] shall have ten (10) days ... to cure any defect. If any such defect is not cured within ten (10) days, [Lenox] shall repurchase the loan .... Any repurchase must occur within ... fifteen (15) days of the notice of defect ....” Id. Lenox also agreed to indemnify Ally for all losses resulting from a defective loan. See id. § XIV.b.

         Ally sold the loans to Fannie Mae and Freddie Mac, which later demanded that Ally repurchase the loans for failure to meet their underwriting requirements.[3] Am. Compl. ¶¶ 28-214. Ally alleges that, among other defects, the loans failed to disclose material liabilities and were based on unacceptable appraisal practices. Id. For example, according to Ally, the Holland loan was based on an appraisal that “failed to disclose the property's location near a busy street, relied upon a comparable sale that could not be located, [and] failed to consider that property values in the surrounding neighborhood had declined 11% in the past year.” Id. ¶ 31.

         From 2012-2013, Ally either repurchased the loans from Fannie Mae or Freddie Mac or indemnified their losses. Id. ¶¶ 28-214. Ally sent written demands to Lenox to repurchase the defective loans or for indemnification.[4] Id. ¶ 24. On July 11, 2016, Ally filed suit against Lenox and, on October 11, 2016, filed an amended complaint. Ally asserts claims for breach of contract and indemnification. Lenox now moves to dismiss the complaint.


         I. Motion to Dismiss

         A. 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 (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 Atl. Corp. v. Twombly, 550 U.S. 544, 556 (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 court properly considers the 2004 and 2008 contracts and the correspondent manual.

         II. ...

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