Source: https://casetext.com/brief/db60af97-deutsche-bank-national-trust-company-solely-in-its-capacity-as-trustee-for-the-harborview-mortgage-loan-trust-series-2007-7-appellantvflagstar-capital-markets-corporation-defendant-quicken-loans-inc-respondent-brief-4
Timestamp: 2020-08-09 05:26:43
Document Index: 657957877

Matched Legal Cases: ['§ 17', '§ 203', '§ 9', '§ 9', '§ 12', '§ 9', '§ 17', '§ 17', '§ 17', '§ 17', '§ 9', '§ 9', '§ 9', '§ 9', '§ 1', '§ 2', '§ 1', '§ 9', '§ 600']

New York County Clerk’s Index No. 653048/13 New York Supreme Court APPELLATE DIVISION FIRST DEPARTMENT DEUTSCHE BANK NATIONAL TRUST COMPANY, solely in its capacity as Trustee of the HARBORVIEW MORTGAGE LOAN TRUST 2007-7, Plaintiff-Appellant, against FLAGSTAR CAPITAL MARKETS CORPORATION, Defendant, and QUICKEN LOANS, INC., Defendant-Respondent. >> >> To Be Argued By: Zachary D. Rosenbaum REPLY BRIEF FOR PLAINTIFF-APPELLANT LOWENSTEIN SANDLER LLP Attorneys for Plaintiff-Appellant 1251 Avenue of the Americas New York, New York 10020 212-262-6700 zrosenbaum@lowenstein.com Of Counsel: Zachary D. Rosenbaum Printed on Recycled Paper -i- TABLE OF CONTENTS Page TABLE OF AUTHORITIES .................................................................................... ii ARGUMENT ............................................................................................................. 1 I. THE TRUSTEE’S ACTION WAS TIMELY COMMENCED BECAUSE THE SOPHISTICATED PARTIES AGREED THAT A CAUSE OF ACTION FOR BREACH OF REPRESENTATIONS AND WARRANTIES SHALL NOT “ACCRUE” UNTIL DEMAND WAS MADE. .................................... 1 A. Quicken Cannot and Does Not Seriously Dispute that the Accrual Clause Defines When A Cause of Action for Breach of Contract Accrues. ................................................. 1 B. The Accrual Clause Establishes Substantive Conditions to the Existence of a Cause of Action. ........................................ 4 C. Public Policy Considerations Support Enforcement of the Accrual Clause. ..................................................................... 9 D. Quicken Undertook Express Promises of Future Performance. ............................................................................. 14 II. QUICKEN’S COVENANT UNDER SECTION 9.03(M) OF THE MLPWA COULD NOT HAVE ACCRUED PRIOR TO THE CLOSING DATE OF THE SECURITIZATION. ..................... 18 III. THE TRUSTEE SATISFIED ALL CONDITIONS PRECEDENT BEFORE FILING SUIT. ............................................ 22 CONCLUSION ........................................................................................................ 25 -ii- TABLE OF AUTHORITIES Page(s) CASES ACE Sec. Corp. Home Equity Loan Trust, Series 2007-HE3 v. DB Structured Prods., Inc., 5 F. Supp. 3d 543 (S.D.N.Y. 2014) .................................................................... 23 ACE Securities Corp. v. DB Structured Products, Inc., 25 N.Y.3d 581 (2015) ..................................................................................passim Bank of N.Y. Mellon v. WMC Mortgage, LLC, 17 N.Y.S.3d 613 (N.Y. Cnty. 2015) ..................................................................... 9 Bayridge Air Rights v. Blitman Construction Corp., 80 N.Y.2d 777 (1992) ................................................................................... 13, 14 Beal Sav. Bank v. Sommer, 8 N.Y.3d 318 (2007) ............................................................................................. 6 Bear Stearns Mortgage Funding Trust 2006-SL1 v. EMC Mortgage LLC, No. 7701-VCL, 2015 WL 139731 (Del. Ch. 2015) ............................................ 17 Blue Grass Partners v. Bruns, Nordeman, Rea & Co., 75 A.D.2d 791 (1st Dep’t 1980) ......................................................................... 19 Bulova Watch Co. v. Celotex Corp., 46 N.Y.2d 606 (1979) ................................................................................... 14, 16 Cont’l Cas. Co. v. Stronghold Ins. Co., 77 F.3d 16 (2d Cir. 1996) ................................................................................. 4, 9 Deutsche Bank National Trust Co. v. Quicken Loans Inc., 810 F.3d 861 (2d Cir. 2015) ........................................................................passim Dickinson v. Mayor of City of N.Y., 92 N.Y. 584 (1883) ............................................................................................... 1 Facie Libre Assoc. I, LLC v. SecondMarket Holdings, Inc., 103 A.D.3d 565 (1st Dep’t 2013) ....................................................................... 18 -iii- Flanagan v. Mount. Eden Gen. Hosp., 24 N.Y.2d 427 (1969) ......................................................................................... 10 GRT, Inc. v. Marathon GTF Technologies, Ltd., No. 5571-CS, 2011 WL 2682898 (Del. Ch. July 11, 2011) ............................... 16 Hahn Auto. Warehouse, Inc. v. Am. Zurich Ins. Co., 18 N.Y.3d 765 (2012) ........................................................................................... 4 Hurlbut v. Christiano, 405 N.Y.S.2d 871 (4th Dep’t 1978) ................................................................... 17 Kassner & Co. v City of New York, 46 N.Y.2d 544 (1979) ............................................................................. 10, 11, 12 Lehman XS Trust v. Greenpoint Mortgage Funding, Inc., No. 14-399-cv (2d Cir. Mar. 16, 2016)................................................................. 9 Natixis Real Estate Capital Trust 2007-HE2, by Wells Fargo Bank, Nat’l Assoc. v. Natixis Real Estate Holdings, LLC, No. 153945/2013, 2015 WL 4038760 (N.Y. Cnty. July 1, 2015) ...................... 23 In re Residential Capital, LLC, 524 B.R. 563 (Bankr. S.D.N.Y. 2015) ................................................................ 16 T&N PLC v. Fred S. James & Co. of New York, Inc., 29 F.3d 57 (2d Cir. 1994) ............................................................................. 13, 14 U.S. Bank Nat’l Assoc’n v. Greenpoint Mortg. Funding, Inc., No. 651954/2013, 2015 WL 915444 (N.Y. Cnty. Mar. 3, 2015) ......................... 7 Vanship Holdings Ltd. v. Energy Infrastructure Acquisition Corp., 65 A.D.3d 405 (1st Dep’t 2009) ......................................................................... 18 STATUTES New York General Obligations Law § 17-103 .................................................. 12, 13 RULES CPLR § 203 ................................................................................................................ 6 -iv- OTHER AUTHORITIES Black’s Law Dictionary (10th ed. 2014) ................................................................... 2 E. Allan Farnsworth, Contracts (3d ed. 2004) ........................................................... 2 Plaintiff-Appellant Deutsche Bank National Trust Company, solely in its capacity as Trustee of the Harborview Mortgage Loan Trust 2007-7 respectfully submits this reply brief in further support of its appeal from the Decision and Order of the Honorable Marcy S. Friedman, Supreme Court of New York, New York County, dated April 13, 2015, which granted the Motion to Dismiss of Defendant- Respondent Quicken Loans, Inc. 1 ARGUMENT I. The Trustee’s Action Was Timely Commenced Because the Sophisticated Parties Agreed that a Cause of Action for Breach of Representations and Warranties Shall Not “Accrue” Until Demand Was Made. A. Quicken Cannot and Does Not Seriously Dispute that the Accrual Clause Defines When A Cause of Action for Breach of Contract Accrues. In ACE Securities Corp. v. DB Structured Products, Inc., 25 N.Y.3d 581 (2015), the Court of Appeals acknowledged—based on case law dating back 140 years—that when a demand is “a part of the cause of action and necessary to be alleged and proven,” without which no cause of action exists, a cause of action does not accrue until the demand has been made. Id. at 597 (quoting Dickinson v. Mayor of City of N.Y., 92 N.Y. 584, 591 (1883)). The important question presented by this appeal is whether sophisticated parties to a contract can agree that 1 Capitalized terms used herein have the same meaning as in the Trustee’s opening brief. Citations to “Pl. Br.” are to the Trustee’s opening brief filed on February 1, 2016. Citations to “Def. Br.” are to Quicken’s response brief filed on March 2, 2016. -2- demand is part of a cause of action necessary for the cause of action to accrue? New York case law, public policy, and common sense dictate that the answer to this question is “yes.” In the MLPWA, Quicken made a series of representations and warranties about the mortgage loans it was selling. (R82-95 § 9.02.) The parties agreed that a false representation and warranty in and of itself is not a breach of the MLPWA. Instead, a breach occurs, and a cause of action for breach accrues, only after the elements of the Accrual Clause were complete. In the Accrual Clause, the parties expressly agreed that any “cause of action” arising in connection with Quicken’s breach of those representations and warranties “shall” not “accrue” until certain conditions are met, the last of which is a demand that Quicken cure or repurchase defective loans. (R98 § 9.03.) Accrue means to “come into existence as an enforceable claim or right.” Black’s Law Dictionary (10th ed. 2014). The parties thus made demand on Quicken an integral part of the cause of action for breaches of representations and warranties that was necessary for the cause of action to accrue. Parties routinely agree in contracts when a cause of action for breach accrues. Indeed, it is fundamental to commercial contracting that parties define their rights and obligations, and, by extension, when contractual violations occur. See E. Allan Farnsworth, Contracts § 12.18 (3d ed. 2004) (stating that parties can -3- agree upon remedial rights, different than the remedies usually supplied by the courts). Here, the parties agreed that a false representation and warranty in and of itself is not a breach of the MLPWA. A breach only occurred after the elements of the Accrual Clause were complete. Quicken fails to justify why its clearly-expressed contractual intent should be disregarded. Instead, Quicken incorrectly argues that ACE II created a “sweeping” and “bright-line” rule that a cause of action for breach of representations and warranties in every RMBS putback action always accrues when the representations and warranties are made. (Def. Br. 15-19.) Not so. The Court of Appeals in ACE II emphasized the parties’ freedom of contract and the importance of interpreting the terms of each contract on a case-by-case basis, stating the Court would not “interpret an agreement as impliedly stating something which the parties have neglected to specifically include.” (Pl. Br. 16-17); ACE II, 25 N.Y.3d at 597. ACE II confirms that contract interpretation requires enforcement of the parties’ intent, not one-size-fits-all rules. ACE II establishes that claims for false representations and warranties accrue at the time they are made, unless the governing agreement says otherwise. The contract at issue in ACE II did not contain an accrual clause specifying when the cause of action for false representations and warranties accrued. Thus, the Court’s ruling that the cause of action for breach of representations and warranties -4- accrued at the time the contract was executed is inapplicable here because in ACE II there was no provision in the contract, such as an Accrual Clause, to indicate a contrary intent. B. The Accrual Clause Establishes Substantive Conditions to the Existence of a Cause of Action. The Court of Appeals in ACE II recognized that parties are free to place in their contracts “a substantive condition precedent to suit that delay[s] accrual of the cause of action.” 25 N.Y.3d at 597. The demand requirement in the Accrual Clause here constitutes such a substantive condition because it is an express element to the existence of a cause of action for breach of contract. See Cont’l Cas. Co. v. Stronghold Ins. Co., 77 F.3d 16, 19-21 (2d Cir. 1996). 2 Until demand was made, the Trustee’s cause of action against Quicken did not exist. Quicken attempts to sidestep this inevitable conclusion by conflating the repurchase protocol in the MLPWA—which the ACE II agreement also had— with the Accrual Clause—which the ACE II agreement did not have. (Def. Br. at 19, 21.) Section 9.03 of the MLPWA contains both a repurchase protocol and the Accrual Clause. They are separate provisions that serve different purposes. The 2 Continental Casualty was cited by the Court of Appeals in Hahn Auto. Warehouse, Inc. v. Am. Zurich Ins. Co., 18 N.Y.3d 765, 772 n.5 (2012). And, notably, in Hahn the Court of Appeals only rejected claimant’s accrual-on-demand argument because, unlike here, the claimant could not “point to any contract language unambiguously conditioning its right to payment on its own demand.” Id. at 771-72. -5- repurchase protocol, set forth in the first and second paragraphs of Section 9.03, provides in pertinent part: Within sixty (60) days of the earlier of either discovery by or notice to the Seller of any such breach of a representation or warranty, which materially and adversely affects the value of the Mortgage Loans or the interest of the Purchaser therein . . . , the Seller shall use its commercially reasonable efforts promptly to cure such breach in all material respects and, if such breach cannot be cured, the Seller shall, at the Purchaser’s option, repurchase such Mortgage Loan at the Repurchase Price. (R96.) Separate and apart from that repurchase protocol, the Accrual Clause, set forth four paragraphs later, provides: Any cause of action against the Seller relating to or arising out of the breach of any representations or warranties made in Subsections 9.01 and 9.02 shall accrue as to any Mortgage Loan upon (i) discovery of such breach by the Purchaser or notice thereof by the Seller to the Purchaser, (ii) failure by the Seller to cure such breach, substitute a Qualified Substitute Mortgage Loan or repurchase such Mortgage Loan as specified above and (iii) demand upon the Seller by the Purchaser for compliance with this Agreement. (R98 (emphasis added).) In ACE II, the contract contained a repurchase protocol similar to the one here but lacked a separate clause addressing accrual. See 25 N.Y.3d at 591. The Court held that the repurchase protocol did not establish a substantive condition precedent to suit because the seller’s refusal to cure or repurchase in -6- accordance with the repurchase protocol involved a “remedy for a preexisting wrong” and not a “condition to a party’s performance.” Id. at 597. The Accrual Clause here, by contrast, makes clear that no legal wrong exists—hence, no cause of action accrues—unless and until all three conjunctive elements are met. Quicken mischaracterizes the Accrual Clause in the MLPWA as the same repurchase protocol at issue in ACE II, but with the word “accrue” added to it. (Def. Br. at 19, 21.) Quicken’s sleight of hand is incorrect and misleading. The Accrual Clause is independent of the repurchase protocol, not duplicative of it with the extra word “accrue” added, as Quicken suggests. (See Def. Br. at 19, 21.) See also Beal Sav. Bank v. Sommer, 8 N.Y.3d 318, 324 (2007) (“A reading of the contract should not render any portion meaningless.”). Under the plain language of the Accrual Clause, no legal wrong had been committed by Quicken until the conditions of the Accrual Clause had been fulfilled. Thus, unlike the repurchase protocol in ACE II, the Accrual Clause here establishes the substantive conditions necessary for a cause of action to exist. Quicken’s contrary interpretation is not plausible. Quicken sheepishly argues that the Accrual Clause “neither mentions nor refers to the statute of limitations.” (Def. Br. at 24–25.) But, of course, the parties’ carefully chosen words “accrue” and “cause of action” undeniably refer to the statute of limitations under CPLR 203(a). Quicken does not explain what “accrue” or “cause of action” -7- could possibly mean if they do not mean accrual for statute of limitations purposes. Nor does Quicken cite any authority that supports an interpretation of “shall accrue” other than accrual for statute of limitations purposes. Indeed, while the IAS Court refused to enforce the Accrual Clause (R15-16), it still correctly concluded, in the case on which it relied in doing so, that the “shall accrue” language was “an unambiguous expression of the parties’ intent.” U.S. Bank Nat’l Assoc’n v. Greenpoint Mortg. Funding, Inc., No. 651954/2013, 2015 WL 915444, at *6 (N.Y. Cnty. Mar. 3, 2015). Furthermore, the Second Circuit’s decision in Deutsche Bank National Trust Co. v. Quicken Loans Inc., 810 F.3d 861 (2d Cir. 2015), was wrongly decided. (See Def. Br. at 21-23.) As explained in the Trustee’s opening brief (Pl. Br. at 20), the Second Circuit erroneously found that ACE II “require[d] [it] to examine the object of the demand, rather than merely apply the phrase ‘shall accrue’ as a talisman.” Quicken, 810 F.3d at 866-67 (emphasis added). Nowhere in ACE II is there even a suggestion that the parties’ clear contractual intent should be disregarded through a search for their “object.” Indeed ACE II instructs just the opposite. The Second Circuit, however, conflated the repurchase protocol with the Accrual Clause, see Quicken, 810 F.3d at 866, which are independent of one another. -8- Likewise, the Second Circuit’s assertion that enforcing the Accrual Clause “results in a circular absurdity” demonstrates that court’s misapprehension of the Accrual Clause. See id. at 867 n.6. The Accrual Clause does not require Quicken to refuse the Trustee’s demand in order for a cause of action to exist, it only requires that demand be made. (R98 (“Any cause of action against the Seller relating to or arising out of the breach of any representations or warranties made in Subsections 9.01 and 9.02 shall accrue as to any Mortgage Loan upon . . . (iii) demand upon the Seller by the Purchaser for compliance with this Agreement.”).) Thus, the Second Circuit’s assumption that “Quicken would have to choose whether to remedy a breach that had not occurred—because it had not yet refused—or to refuse and, by its refusal, breach the contract and become obligated to remedy that breach” is incorrect. Quicken, 810 F.3d at 867 n.6. Under the plain language of the Accrual Clause, once demand is made, the cause of action for breach of representations and warranties accrues. Thus, the Accrual Clause does not create the Catch-22 situation for Quicken that the Second Circuit assumed. See id. The “circular absurdity” that the Second Circuit misapprehended demonstrates its fundamental misunderstanding of the Accrual Clause. -9- Finally, while the Second Circuit did not fully explain how it could so easily disregard the Accrual Clause, 3 its own precedent suggests that the only boundaries on parties’ freedom “to agree upon conditions precedent to suit” are the “limits of public policy.” Continental, 77 F.3d at 19. Yet, the court cited no public policy grounds—because there are none—to set aside the Accrual Clause. 4 C. Public Policy Considerations Support Enforcement of the Accrual Clause. In its opening brief, the Trustee detailed New York’s long and storied commitment to the principal of freedom of contract, as well as the importance of that public policy to the viability of New York’s economy. (Pl. Br. at 24-29.) The fundamental principle of freedom of contract is at the core of this dispute. Quicken does not attempt to argue—nor could it—that New York does not have a strong public policy in favor of freedom of contract that has been vital to New York’s ascension to the commercial center of the world. Rather, it argues 3 The Second Circuit recently issued a Summary Order in Lehman XS Trust v. Greenpoint Mortgage Funding, Inc., No. 14-399-cv (2d Cir. Mar. 16, 2016), where it again rejected an Accrual Clause argument based on its decision in Quicken, 810 F.3d 861. 4 Quicken’s reliance on a lower court’s decision in Bank of N.Y. Mellon v. WMC Mortgage, LLC, 17 N.Y.S.3d 613 (N.Y. Cnty. 2015), is also misplaced. (See Def. Br. at 24.) There, Justice Kornreich recognized that the accrual clause was an “unambiguous” attempt by “sophisticated” parties to “define and determine the accrual of a claim for breach.” Id. at 616. But the court errantly ignored that intent when it refused to hold that the repurchase protocol “is a substantive condition precedent” for fear of “contravening” ACE II. Id. at 617. As explained above, ACE II does not dictate that result. Justice Kornreich also operated under the misconception that the accrual clause was not a separate provision from the repurchase protocol. Id. at 617 (“[T]he court cannot hold that the repurchase protocol in Section 7.03 of the MLSA is a substantive condition precedent without contravening ACE.” (emphasis added)). -10- that enforcement of the Accrual Clause would violate New York public policy concerning extensions of the statute of limitation. (Def. Br. at 25-29.) Quicken’s argument is untenable. First, the Accrual Clause does not extend the statute of limitations. Rather, it defines when the breach occurs. Parties may freely define when a breach occurs, and such agreements do not implicate the public policy concerns that might apply if parties attempt to enlarge the limitations period. See Kassner & Co. v City of New York, 46 N.Y.2d 544 (1979) (“[W]hen the right to final payment is subject to a condition, the obligation to pay arises and the cause of action accrues, only when the condition has been fulfilled.”). Second, enforcement of the Accrual Clause does not contravene the underlying goals of the statute of limitations. As noted in the Trustee’s opening brief, the Accrual Clause does not violate the principle of fairness to the defendant because Quicken is a sophisticated financial institution that expressly agreed to the Accrual Clause. (Pl. Br. at 26-27.) Third, although statutes of limitations also guard against “stale claims,” which, due to the passage of time, may become difficult to prosecute when “by loss of evidence from death of some witnesses, and the imperfect recollection of others, or the destruction of documents, it might be impossible to establish the truth,” Flanagan v. Mount. Eden Gen. Hosp., 24 N.Y.2d 427, 430 -11- (1969), this risk is mitigated in RMBS “putback” litigation, where a plaintiff’s case depends largely on proving breaches of representations and warranties using information in the mortgage loan files. The loan files are required by law to be preserved for the life of the RMBS trust. Quicken’s assertion that in Kassner the Court of Appeals “invalidated an accrual provision in a contract adopted at the contract’s inception” is incorrect. (See Def. Br. at 26.) Kassner did not involve an accrual clause, and the Court’s reasoning in Kassner actually supports the Trustee’s position in this case. (Pl. Br. at 29-33.) In Kassner, the plaintiff tried to avoid the effect of an audit provision in its contract by pointing to a different clause stating that “[n]o action shall be . . . maintained against the City [for breach of contract] unless such action shall be commenced within six (6) months after” the filing of a certificate for final payment. Id. at 548. The plaintiff in Kassner thus argued that its cause of action did not accrue until the filing of the certificate. Id. at 549. The Court rejected the plaintiff’s position and, in a passage that supports the Trustee’s position here, stated: “[A]s a general rule, when the right to final payment is subject to a condition, the obligation to pay arises and the cause of action accrues, only when the condition has been fulfilled. In this case, however, the contract does not state that the plaintiff’s right to final payment is conditioned upon the filing of a -12- certificate of final payment.” Id. at 550 (internal citations omitted). The Kassner Court therefore found that the provision plaintiff relied upon regarding the certificate was a “limitations provision” and did not purport to define when a claim for breach accrued; thus, the plaintiff could not use that provision to, in effect, extend the statute of limitations beyond the six years imposed by New York law. Id. at 551–52. Here, the Accrual Clause is nothing like the operative provision in Kassner, which the Court found was “undoubtedly . . . included to shorten the Statute of Limitations.” Id. at 552. Rather, the Trustee’s rights against Quicken are conditioned on three conjunctive elements: (1) discovery or notice, (2) failure to cure or repurchase, and (3) demand for compliance. (R98 § 9.03.) The MLPWA does not purport to extend the statute of limitations. Moreover, the Accrual Clause is nothing like the extension provisions that the Kassner court cautioned may be stricken on public policy grounds because they are “the result of ignorance, improvidence, an unequal bargaining power or [are] simply unintended.” Kassner, 46 N.Y.2d at 551. To the contrary, the Accrual Clause is the product of careful drafting by sophisticated commercial parties, designed to address the specific circumstances inherent in this mortgage loan securitization. The Accrual Clause also does not implicate New York General Obligations Law § 17-103. (See Def. Br. at 25-29.) Section 17-103 applies only -13- to a “promise to waive, to extend, or not to plead the statute of limitation applicable to an action arising out of a contract,” i.e., a tolling agreement. General Obligations Law § 17-103. The Accrual Clause does not contain a “promise to waive, to extend or not to plead” the statute of limitations, but rather sets forth the substantive requirements for a cause of action for breach of contract to accrue. Because Section 17-103 is inapposite, so are Quicken’s authorities applying it. The Court of Appeals’ ruling in Bayridge Air Rights v. Blitman Construction Corp., 80 N.Y.2d 777, 779–80 (1992), is inapposite. That case concerned a tolling agreement entered into after a cause of action arose, not an accrual clause specifying conditions to the very existence of a cause of action. The Court in Bayridge enforced General Obligations Law § 17-103, which requires that a tolling agreement entered into after a cause of action accrues must include a specific termination date, rather than an indefinite term. Neither General Obligations Law § 17-103 nor Bayridge applies here. And neither addresses, much less undermines, the established principles that dictate enforcement of the Accrual Clause. Quicken’s reliance on T&N PLC v. Fred S. James & Co. of New York, Inc., 29 F.3d 57 (2d Cir. 1994), is similarly misplaced because that case also concerns a tolling agreement with an indefinite term, not an accrual clause. In T&N, similar to Bayridge, the statute of limitations began to run on the plaintiff’s -14- claim, and the parties thereafter entered into a standstill agreement that would expire at an indefinite point in the future. T&N, 29 F.3d at 61. The Second Circuit applied Bayridge and held that the standstill agreement was void because it did not terminate on a date certain. Id. T&N had nothing to do with an accrual clause or conditions to payment in the original contract, and thus does not support the proposition that enforcement of the Accrual Clause violates public policy. D. Quicken Undertook Express Promises of Future Performance. In ACE II, the Court of Appeals recognized that parties are free to make promises of future performance, the breach of which does not arise until performance is due. See ACE II, 25 N.Y.3d at 594-95 (citing Bulova Watch Co. v. Celotex Corp., 46 N.Y.2d 606, 608 (1979)). The Accrual Clause required future performance by using the unmistakable words “cause of action” and “shall accrue.” (R98 § 9.03.) Moreover, the MLPWA states that Quicken’s representation and warranties “survive” the mortgage loans’ sale. (R96 § 9.03 (emphasis added).) Thus, unlike the contract at issue in ACE II, the MLPWA contains express promises of future performance by Quicken. (Pl. Br. at 21-24.) Quicken does not seriously dispute that the Accrual Clause required future performance. Instead it focuses on the survival clause. (Def. Br. at 30.) Relying on documents outside the record on appeal, Quicken argues that the contract in ACE II actually contained a survival provision. (Def. Br. at 31.) -15- Quicken’s straw-man misses the point entirely. 5 What matters here is that the Court of Appeals clearly concluded that the contracts at issue in Ace II disclaimed survival of the representations and warranties: [The seller] represented and warranted certain facts about the loans’ characteristics as of March 28, 2006, when the MLPA and PSA were executed, and expressly stated that those representations and warranties did not survive the closing date. ACE II, 25 N.Y.3d at 595 (emphasis added). And that was a key element in the Court’s conclusion that the seller did not undertake an express promise of future performance. Further, Quicken’s reliance on the Second Circuit’s rejection of a similar survival clause in Quicken is equally unavailing. (See Def. Br. at 32-33.) The Trustee’s argument is that, when read together, the Accrual Clause and the survival provision in the MLPWA reflect a promise of future performance. (Pl. Br. at 21-24.) The Second Circuit, however, read the Accrual Clause out of the 5 Quicken improperly accuses the Trustee of relying on documentation outside of the record on appeal in arguing that ACE II did not involve a survival clause. (See Def. Br. at 30.) That is incorrect; the Trustee merely relied on the Court of Appeal’s own language in ACE II. (Pl. Br. at 23 (“The Court of Appeals ascribed significance to the parties’ express disclaimer of survival in ACE II, since the Court specifically mentioned that disclaimer in examining the parties’ contractual intent, or lack thereof.” (citing ACE II, 25 N.Y.3d at 595)).) This is just one example of where Quicken pushes the limits of zealous advocacy. In another example, Quicken defines the Trustee as “DB” and then misleadingly asserts that “[i]n ACE, and numerous other cases, DB took the position . . . diametrically opposed to the one it is taking in this case . . . .” (See Def. Br. at 16 n.8.) The Trustee was not a party in ACE, nor was it a party to any of the other cases that Quicken cites. The Trustee is an entirely distinct and separate legal entity from the Deutsche Bank-related entities involved in those cases. For Quicken to assert that the Trustee has taken positions in other cases “diametrically opposed” to the position it is advancing in this case is, at best, purposely confusing. -16- agreement altogether by searching for an unexpressed “object” of the parties’ demand requirement. Quicken, 810 F.3d at 866. While the court found that the representations and warranties in Quicken concerned only the “present characteristics and quality” of the loans, that was true, but irrelevant. Id. Section 9.03 of this MLPWA is akin to the “repair” obligation in Bulova. In Bulova, the seller made a twenty-year promise to repair the defective components of the roof it sold, if those components did not satisfy the seller’s guarantee. 46 N.Y.2d at 608-09. The MLPWA here operates in substantially the same way. The bundle (or “pool”) of mortgage loans sold by Quicken under the MLPWA and later securitized in the Trust was the equivalent of the roof in Bulova. Each individual mortgage loan was a component of that collateral pool, just as each shingle or each nail or each plank was a component the roof in Bulova. Thus, in Bulova, if a component of the roof turned out to be defective—regardless of when that defect manifested or, more importantly, whether that defective component existed at the time of sale—the seller agreed to repair the defect by operation of the guarantee obligation. Id. at 609. The other cases that Quicken cites to undermine the significance of the survival clause are inapposite. (See Def. Br. at 35-36.) The courts in GRT, Inc. v. Marathon GTF Technologies, Ltd., No. 5571-CS, 2011 WL 2682898 (Del. Ch. July 11, 2011), and In re Residential Capital, LLC, 524 B.R. 563 (Bankr. S.D.N.Y. -17- 2015), cases which did not involve Accrual Clauses, applied Delaware law and Minnesota law, respectively, not New York law. Indeed, if it is Quicken’s position that Delaware law applies here, then this Court need look no further to the Delaware Court of Chancery’s decision in Bear Stearns Mortgage Funding Trust 2006-SL1 v. EMC Mortgage LLC, No. 7701-VCL, 2015 WL 139731, at *10-12 (Del. Ch. 2015), where the Court enforced the accrual clause and held that the statute of limitations did not begin to run until the conditions of the Accrual Clause had been satisfied. The Fourth Department’s decision in Hurlbut v. Christiano, 405 N.Y.S.2d 871 (4th Dep’t 1978)—the only New York authority cited by Quicken— concerned whether survival language shortened the applicable statute of limitations. In Hurlbut, the plaintiff buyer and the defendant seller of a nursing home disputed whether an agreement that representations and warranties would survive a closing by three years also shortened the statute of limitation by three years. The trial court dismissed the complaint as time-barred. The Fourth Department disagreed, noting that the provision at issue was intended to protect the plaintiffs against additional unknown defects, allowing the plaintiff to hold the defendant liable for any defects noticed up to three years after closing. “The language of the agreement was clear and unambiguous and suggests nothing from which a shortened period of limitations can be inferred.” Id. at 873. Thus, Hurlbut -18- does nothing to undermine the Trustee’s position that the MLPWA contains express promises of future performance by Quicken. II. Quicken’s Covenant Under Section 9.03(m) of the MLPWA Could Not Have Accrued Prior to the Closing Date of the Securitization. MLPWA Section 9.01(m) contains a covenant whereby Quicken promised that no information furnished in connection with the closing of the Securitization “will contain any untrue statement of fact or omits or will omit to state a fact necessary to make the statements contained herein or therein misleading.” (R81 § 9.01(m); Pl. Br. at 34-38.) Quicken’s primary response is that this argument was not expressly made before the IAS Court and therefore may not be considered on appeal. (Def. Br. at 36.) Quicken is wrong. A party may raise legal arguments on appeal if they relate to a dispositive issue and if they are supported in the record. See, e.g., Facie Libre Assoc. I, LLC v. SecondMarket Holdings, Inc., 103 A.D.3d 565, 565 (1st Dep’t 2013) (“Although defendant raised this argument for the first time on appeal, so long as the issue is determinative and the record on appeal is sufficient to permit our review, we may consider a new legal argument raised for the first time in this Court.” (internal citations and quotations omitted)); Vanship Holdings Ltd. v. Energy Infrastructure Acquisition Corp., 65 A.D.3d 405, 408 (1st Dep’t 2009) (“So long as the issue is determinative and the record on appeal is sufficient to -19- permit our review, we may consider a new legal argument raised for the first time in this Court.” (internal citations and quotations omitted)). The Trustee’s argument concerning Section 9.01(m) is fully supported by the allegations in the Complaint and the documents in the record, and therefore may be considered. (See R28-29 ¶¶ 14-18, R31 ¶ 22, R39 ¶ 40, R40-43 ¶¶ 45-57, R49 ¶ 84; R81 § 9.01(m).) 6 First, the Complaint alleges the process of how loans were sold into the Trust on October 2, 2007: 15. The Mortgage Loans were eventually sold to Greenwich Capital Financial Products, Inc. (the “Sponsor” of the securitization) and then to Greenwich Capital Acceptance, Inc. (the “Depositor”) pursuant to a series of agreements, including an Assignment and Recognition Agreement dated October 2, 2007 (the “ARA”). Pursuant to those agreements, the Depositor was assigned the rights to enforce Quicken’s obligations under the MLPWA, and Quicken made certain additional representations and warranties to the Sponsor, Depositor, and Trust. See ARA §§ 1, 2. 16. The Depositor intended to sell the Mortgage Loans to (i.e., “deposit” them into) the Trust. The conveyance of the Mortgage Loans by the Depositor into this securitization was accomplished pursuant to a Pooling and Servicing Agreement dated as of September 1, 2007 (the “PSA”). The PSA also created the Trust. In the PSA, the Depositor assigned all of its rights in the 6 This reasoning applies with equal force to Quicken’s protestations about the Trustee’s survival- clause argument. (See Def. Br. at 30-32.) The cases cited by Quicken are irrelevant, because in each of those cases the new issues were either not dispositive or the record was not sufficient to allow the Court to consider them, or both. See, e.g., Blue Grass Partners v. Bruns, Nordeman, Rea & Co., 75 A.D.2d 791, 793 (1st Dep’t 1980) (“Although it is appropriate for an appellate court to consider new arguments going to the merits when an adequate record is presented, the record before us is insufficient.”). -20- Mortgage Loans and under the MLPWA to the Trust and made certain representations and warranties to the Trust. PSA §§ 2.01, 2.06. The Closing Date of the securitization was October 2, 2007 (the Closing Date”). PSA § 1.01. The list of exact loans that would be part of the securitization could be changed up until the Closing Date. (R28-29.) Second, the Complaint expressly alleged that Quicken covenanted, among other things, that: (m) No Untrue Information. To the Seller’s knowledge, neither this Agreement nor any information, statement, tape, diskette, report, form, or other document furnished or to be furnished pursuant to this Agreement or in connection with the transactions contemplated hereby (including any Securitization Transaction or Whole Loan Transfer) contains or will contain any untrue statement of fact or omits or will omit to state a fact necessary to make the statements contained herein or therein not misleading[.] (R31 ¶ 22 (citing MLPWA § 9.01(m)).) Third, the Complaint alleges pervasive breaches that defeated the very purpose of the MLPWA and PSA: 40. The nature and number of the breaches revealed by the reviews were sufficient to defeat the very purpose of the PSA and MLPWA. These characteristics and safeguards were reflected in Quicken’s representations and warranties. The reviews revealed that numerous Mortgage Loans did not possess the represented characteristics and safeguards at the time of the securitization. Instead of receiving a pool of loans having the characteristics and quality represented by Quicken, the Trust received a far riskier and less stable loan pool. -21- (R39 (emphasis added).) Finally, the Complaint contains numerous examples of breaches of representation and warranties that materially and adversely affected the value of the loans and the interest of the Trust therein, which interest did not exist until October 2, 2007. (R40-43 ¶¶ 45-57.) Quicken’s alternative argument—that the Complaint does not allege a breach of Section 9.01(m)—is similarly misguided. (See Def. Br. at 37.) For example, as noted above, the Complaint actually block quotes Section 9.01(m) in paragraph 22 (R31), and in paragraph 84, alleges among other things that: Quicken sold for placement in the Trust numerous defective mortgage loans that were not originated in accordance with applicable underwriting standards, that involved error, fraud or other inaccuracies on the part of any person involved in the origination process, that were in material breach under the terms of the applicable mortgage or mortgage note or that were otherwise not in accordance with Quicken’s representations and warranties[.] (R49 ¶ 84.) The Trustee alleges that the information furnished in connection with the closing of the Securitization was false as of October 2, 2007. Consequently, the Trustee’s claim for breach of Section 9.01(m) of the MLPWA is timely even without enforcement of the Accrual Clause. -22- III. The Trustee Satisfied All Conditions Precedent Before Filing Suit. All conditions precedent to suit were satisfied prior to the Trustee filing suit on August 30, 2013. By virtue of the demand on August 6, 2013, all of the conjunctive elements of the Accrual Clause were complete, at which time the MLPWA was breached by Quicken: (i) “discovery of such breach by the Purchaser . . . ;”  The Complaint alleges that Quicken discovered its false representations and warranties several years before the August 2013 filing date. (R36-37 ¶¶ 28-33.) Further, on or around July 26, 2013, Freddie Mac notified the Trustee of defective loans and, on or about July 30, 2013, the Trustee notified the Master Servicer of those defective loans. (R44 ¶ 61.)7 (ii) “failure by [Quicken] to cure such breach, substitute a Qualified Substitute Mortgage Loan, or repurchase such Mortgage Loan as specified above; and”  This condition occurred when 60 days passed after Quicken’s discovery of the defective loans, which occurred years ago. (R36-37 ¶¶ 28-33.) (iii) “demand upon [Quicken] by the Purchaser for compliance with this Agreement.”  This condition occurred by virtue of the August 6, 2013 demand. (R44-46 ¶¶ 60-67.) 7 Throughout its brief, although not actually in the Argument section, Quicken makes several offhand references to a securities fraud action brought by the FHFA against Royal Bank of Scotland, implying that the Trustee somehow must have known about Quicken’s breaches or representations and warranties prior to 2013. (See Def. Br. at 4, 7-8.) The fact that a certificateholder brought suit for securities fraud does not mean that the Trustee had notice of Quicken’s breaches. -23- This case was initiated via a Summons with Notice on August 30, 2013 and a Complaint on February 3, 2014—both of which were filed after all three conditions occurred—and is timely. Quicken’s reliance on ACE II is misplaced. (See Def. Br. at 38-39.) In ACE, the plaintiff did not allege that the defendant had independently discovered breaches of representations and warranties. Indeed, New York courts that have considered the issue have universally held that where, as here, the plaintiff alleges that the defendant independently discovered breaches of representations and warranties, the requirement that the defendant be provided with 60 or 90-days’ notice prior to the filing of the summons with notice does not apply. See, e.g., Natixis Real Estate Capital Trust 2007-HE2, by Wells Fargo Bank, Nat’l Assoc. v. Natixis Real Estate Holdings, LLC, No. 153945/2013, 2015 WL 4038760, at *4 (N.Y. Cnty. July 1, 2015) (“This court has repeatedly held that where the governing agreement provides that the defendant’s own discovery of breaches independently gives rise to its repurchase obligation, a put-back action may be maintained based on allegations of the defendant's discovery.”); ACE Sec. Corp. Home Equity Loan Trust, Series 2007-HE3 v. DB Structured Prods., Inc., 5 F. Supp. 3d 543, 558-60 (S.D.N.Y. 2014) (“By alleging that DBSP conducted due diligence on loan pools that suffered from obvious and widespread breaches, Plaintiff has adequately -24- alleged that DBSP discovered those breaches, and therefore that its cure-or- repurchase obligations were triggered independent of any notices.”). The Complaint alleges that Quicken, through its own underwriting due diligence of the Mortgage Loans, discovered breaches of representations and warranties years before the Trustee filed its Summons with Notice. (R36-37 ¶¶ 28- 33.) Thus, Quicken’s argument that the conditions precedent to suit have not been fulfilled, because 60 days did not elapse between the August 6, 2013 notice and the filing of the August 30, 2013 Summons with Notice, is a red herring. This lawsuit was timely filed after all contractual conditions precedent had been satisfied. CONCLUSION For the foregoing reasons, the lAS Court's Decision and Order dismissing this action should be reversed. Dated: March 18, 2016 Zach ry Jona C. Wis ia Michael J. Hampson LOWENSTEIN SANDLER LLP 1251 A venue of the Americas New York, NY 10020 212.262.6700 Attorneys for Plaintiff-Appellant -25- PRINTING SPECIFICATION STATEMENT I hereby certify pursuant to 22 NYCRR § 600.10(d)(1)(v) that this computer generated brief was prepared using a proportionally spaced typeface. Name of typeface: Times New Roman Point size: 14 Line spacing: Double The total number of words in the brief, inclusive of point headings and footnotes and exclusive of pages containing the table of contents, table of authorities, proof of service, printing specification statement, or any authorized addendum containing statutes, rules, and regulations, etc. is 6,087. Dated: March 18,2016