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In re RFC and ResCap Liquidating Trust Litigation

United States District Court, D. Minnesota

March 18, 2019

In Re: RFC and ResCap Liquidating Trust Litigation
v.
Home Loan Center, Inc., This document relates to: ResCap Liquidating Trust

          MEMORANDUM OPINION AND ORDER

          SUSAN RICHARD NELSON, UNITED STATES DISTRICT JUDGE.

         I. INTRODUCTION

         Before the Court is the Motion for Prejudgment Interest [Doc. No. 4739] filed by Plaintiff ResCap Liquidating Trust (“ResCap”). For the reasons set forth below, Plaintiff's motion is granted in part and denied in part.

         II. BACKGROUND

         The facts of this litigation have been thoroughly addressed in prior rulings, which are incorporated by reference. In brief, Residential Funding Company, LLC (“RFC”) commenced this action against Defendant Home Loan Center, Inc. (“HLC”) on December 16, 2013.[1] (Residential Funding Company, LLC v. Home Loan Center, Inc., No. 14-cv- 1716 (SRN/HB), Affs. of Service [Doc. No. 1-15]) (indicating that service of the Complaint was effected on December 16, 2013); Minn. R. Civ. P. 3.01(a) (stating that an action is “commenced” upon service of process).

         In the years preceding its bankruptcy, RFC was in the business of acquiring and securitizing residential mortgage loans from a number of originating lenders, including HLC. (See Scheck Decl. [Doc. No. 3258], Ex. 10 (Horst Dep. at 620-23); id., Ex. 36 (Ruckdaschel Dep. at 40-41); id., Ex. 19 (Corr. Hawthorne Rpt. ¶ 17).) RFC then sold the pooled loans into residential mortgage-backed securitization (“RMBS”) trusts (“the Trusts”). (See id., Ex. 19 (Corr. Hawthorne Rpt. ¶ 17).) The relationships between RFC and the originating lenders, including HLC, were governed by contracts and a detailed document known as the Client Guide. (Id.) Pursuant to the terms of the Client Guide, HLC made various representations and warranties (“R&Ws”) concerning the quality of the loans that it sold to RFC. (Id.) In addition, the Client Guide contained the following indemnification provision: “[HLC] also shall indemnify GMAC-RFC[2] and hold it harmless against all court costs, attorney's fees and any other costs, fees and expenses incurred by GMAC-RFC in enforcing the Client Contract.” (Client Guide § A212).

         Just as HLC made R&Ws to RFC pursuant to the Client Guide, RFC made various R&Ws to the Trusts concerning the quality of the loans pursuant to the contracts between RFC and the Trusts. (Scheck Decl., Ex. 19 (Corr. Hawthorne Rpt. ¶ 17.) Ultimately, the loans in the RFC-sponsored securitizations experienced a high rate of default. (Id. ¶ 19.) The Trusts and some of their monoline insurers experienced significant financial losses. (Id.) In approximately 2008, multiple entities demanded that RFC repurchase its loans and/or filed lawsuits against RFC to recoup their losses. (Id. ¶ 20.)

         In May 2012, RFC filed for Chapter 11 relief in the U.S. Bankruptcy Court for the Southern District of New York (“Bankruptcy Court”). It ultimately entered into comprehensive settlements with the Trusts and monoline insurers, subject to the Bankruptcy Court's approval. In December 2013, in a 134-page ruling, the Bankruptcy Court set forth its reasons for confirming and approving RFC's bankruptcy plan, including the settlements. (See id., Ex. 28 (Bankr. Findings of Fact).)

         In this litigation, RFC asserted breach of contract and indemnification claims under Minnesota state law based on the losses and liabilities it incurred in the Bankruptcy Court settlements. (Residential Funding Company, LLC v. Home Loan Center, Inc., No. 14-cv-1716 (SRN/HB), First Am. Compl. [Doc. No. 1-2] ¶¶ 78-85; 86-89.) Following the consolidation of this case with numerous other cases brought in a “first wave” by RFC, the parties engaged in intensive discovery. The case against HLC was the only of the first-wave cases to go to trial, as Plaintiff and other Defendants settled many of the actions. Shortly before the HLC trial, pursuant to the parties' stipulation, ResCap withdrew its breach of contract claim and proceeded to trial against HLC solely on its indemnification claim. (See Oct. 4, 2018 Order on Stip. [Doc. No. 4515].)

         The Court presided over the jury trial between ResCap and HLC from October 15 through November 8, 2018. On November 8, 2018, the jury found HLC liable, and required it to indemnify ResCap for its underlying losses and liabilities. (See Redacted Jury Verdict [Doc. No. 4705].) It awarded ResCap damages in the amount of $28.7 million. (Id.)

         ResCap now moves for an award of prejudgment interest, comprised of the following: (1) $14, 066, 931.50 in preverdict prejudgment interest running from the commencement of this action through the jury's verdict; (2) preverdict prejudgment interest on any award of attorney's fees and costs, as determined by the Court; and (3) postverdict prejudgment interest running from the date of the verdict through entry of final judgment at a rate of 10% per annum on the total of the jury's award, any attorney's fees and costs, and preverdict interest.

         HLC opposes the motion, arguing that: (1) the jury's damages award was for “future damages, ” which are not subject to prejudgment interest; (2) Plaintiff is not entitled to prejudgment interest on any award of attorney's fees and costs; (3) any award of preverdict interest should be reduced in light of Plaintiff's dilatory requests for damages discovery; and (4) Plaintiff is not entitled to postverdict prejudgment interest.

         III. DISCUSSION

         A. Preverdict Prejudgment Interest from Commencement of Action Through Jury Verdict

         ResCap asserts that Minn. Stat. § 549.09 governs the application of preverdict prejudgment interest for the following reasons: (1) the value of its claim had to be determined by litigation; (2) the proper damages methodology was disputed; (3) there were significant variations in Plaintiff's damages methodologies; and (4) the amount of Plaintiff's claim was dependent on the jury's discretion. (Pl.'s Mem. Supp. Mot. for Prejudgment Int. (“Pl.'s Mem.”) [Doc. No. 4741] at 4-6.) Thus, ResCap argues that it is entitled to prejudgment interest on the jury's award.

         In its opposition, HLC does not dispute the general applicability of Minn. Stat. § 549.09 to awards of prejudgment interest. Rather, it argues that ResCap is not entitled to preverdict interest on the jury's damages award because the damages constitute “future damages” for liabilities that ResCap has yet to pay. (Def.'s Opp'n Mem. (“Def.'s Opp'n”) [Doc. No. 4778] at 4-9.)

         Because ResCap's indemnification claim was asserted under state law, Minnesota law governs Plaintiff's request for prejudgment interest. See Ewald v. Royal Norwegian Embassy, No. 11-cv-2116 (SRN/SER), 2015 WL 1746375, at *21 (D. Minn. Apr. 13, 2015) (stating general rule that “prejudgment interest is a substantive remedy governed by state law when state-law claims are brought in federal court.”). Under Minn. Stat. § 549.09, “[w]hen a judgment or award is for the recovery of money, . . ., interest from the time of the verdict . . . until judgment is finally entered shall be . . . added to the judgment or award.” Minn. Stat. § 549.09, subd. 1(a). Where the judgment or award exceeds $50, 000, subject to certain exceptions that are inapplicable here, “the interest rate shall be ten percent per year until paid.” Id., subd. 1(c)(2).

         The Minnesota Supreme Court has recognized that preverdict interest is “not conventional ‘interest, '” but rather, “it is an element of damages awarded to provide full compensation by converting time-of-demand . . . damages into time-of-verdict damages.” Marvin Lumber & Cedar Co. v. PPG Indus., Inc., 401 F.3d 901, 918 (8th Cir. 2005) (citing Lienhard v. State, 431 N.W.2d 861, 865 (Minn. 1988)). It is designed to “compensate[ ] [the plaintiff] for the loss of the use of money occasioned by the defendant's conduct.” Poehler v. Cincinnati Ins. Co., 899 N.W.2d 135, 150 (Minn. 2017) (citing Lienhard, 431 N.W.2d at 865)). Additionally, the preverdict interest statute aims to promote good faith settlement negotiations. Skifstrom v. City of Coon Rapids, 524 N.W.2d 294, 297 (Minn.Ct.App. 1994).

         Where damages “are not readily ascertainable, ” preverdict interest “should be calculated exclusively under section 549.09.” Hogenson v. Hogenson, 852 N.W.2d 266, 274 (Minn.Ct.App. 2014). For instance, section 549.09 applies “when there exist numerous methods of computing damages which reach vastly different results.” Matthew v. Unum Life Ins. Co. of Am., 639 F.3d 857, 865 (8th Cir. 2011); see also Hutchinson Utils. Comm'n v. Curtiss-Wright Corp., 775 F.2d 231, 242 (8th Cir. 1985) (finding damages not readily ascertainable where plaintiff submitted two different methods of computing damages, the court used a third method, and damages were “further complicated” by possible issues concerning allocation of damages between defendants). Plaintiff here developed three damages methodologies, two of which were precluded on summary judgment, and the case also involved allocation issues among the originating lenders.

         Also, where the value of a claim must be determined by litigation, as was the case here, it is not “readily ascertainable.” Hogenson, 852 N.W.2d at 274. HLC strongly contested ResCap's valuation, although it did not develop its own damages methodology. (See May 28, 2015 Hr'g Tr. [Doc. No. 509] at 95, 96; Trial Tr. [Doc. No. 4722] at 2797.) Moreover, Minnesota courts have also found that where damages depend upon a jury's discretion, they are not readily ascertainable. See Potter v. Hartzell Propeller, 189 N.W.2d 499, 504 (Minn. 1971); Noble v. C.E.D.O., Inc., 374 N.W.2d 734, 743 (Minn.Ct.App. 1985). As noted, the damages in this case were awarded by a jury.

         This case involved multiple damages methodologies, and the value of Plaintiff's claim was determined by litigation and a jury verdict. Accordingly, the Court finds that the damages in this case were not readily ascertainable, and are subject to the provisions of Minn. Stat. § 549.09 for awards of prejudgment interest, absent some exception.

         1. ...


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