Opinion ID: 3172574
Heading Depth: 4
Heading Rank: 1

Heading: It pleaded indemnity claims.

Text: 2. Indemnity claims are governed by accrual rules that differ from those involving contract claims. We disagree with the first point: Lehman Holdings pleaded breach of contract, rather than indemnity; thus, Lehman Holdings’ claims accrued at the closing of the sales. The plaintiff’s choice of a cause of action affects not only the substance of the remedies available, but also the application of the limitations period: Where a suit invokes several causes of action, each is subject to a distinct statute of limitations; thus, distinct accrual periods should apply as to each cause of action. See King v. Otasco, Inc., 861 F.2d 438, 441 (5th Cir. 1988). This is true even if the causes of action are derived from a single event. Id. Tiberi v. Cigna Corp, 89 F.3d 1423, 1428 (10th Cir. 1996). New York courts recognize that a claim for indemnification is distinct from a claim for breach of contract. 9 For example, in Varo, Inc. v. Alvis PLC, 691 N.Y.S.2d 51, 261 A.D.2d 262 (N.Y. App. Div. 1999), the New York Supreme Court Appellate Division distinguished between claims 9 We focus here on New York law because the Loan Purchase Agreements require application of New York law. 27 involving breach of warranty and indemnification. Varo, Inc., 691 N.Y.S.2d at 55, 261 A.D.2d at 264-65. Explaining this distinction, the court said that the plaintiff’s first cause of action involved indemnification because “[t]he pleadings characterize the action as one for contractual indemnity, and the amended complaint itself alleges” a failure to indemnify. Id. In contrast, Lehman Holdings’ amended complaints characterize the actions as suits for breach of contract. For example, each amended complaint identifies a single cause of action, labeled “Breach of Contract.” Lehman Holdings’ App’x at 22, 928, 1606, 2274, 3229. Similarly, the prayers for relief request “all damages arising from or relating to Universal [American’s] breaches of contract” and “an Order of this Court declaring that Universal [American] is required to compensate Lehman immediately for all actual and consequential damages resulting from Universal [American’s] breaches of the Representations, Warranty, and Covenant provisions of the Agreement and Seller’s Guide.” E.g., id. at 23, 929. And in moving for summary judgment, Lehman Holdings expressly characterized its claim as one for breach of contract. For example, Lehman Holdings argued: As a result of any one of the various loan defects, [Universal American] breached its representations regarding the quality of the loan, the veracity of the loan documents, and compliance with the underwriting guidelines. Consequently, [Lehman Bank] did not receive the product for which it had 28 purchased in reliance upon [Universal American’s] representations. [Lehman Bank] received a product of lesser value and greater risk. Accordingly, [Universal American] breached the Agreement. [Universal American] also refused [Lehman Holdings’] demands for repurchase and indemnification. These facts establish a breach of the parties’ unambiguous contract and that [Lehman Holdings] is due judgment as a matter of law. Id. at 956 (Lehman Holdings’ argument for partial summary judgment in No. 13-cv-87-CMA-MJW); see also id. at 3472 (virtually identical quotation by Lehman Holdings in its motion for partial summary judgment in No. 13-cv-92-WJM-BNB); id. at 160 (virtually identical quotation by Lehman Holdings in its motion for partial summary judgment in No. 13cv-91-REB-KMT); id. at 1621 (Lehman Holdings arguing in its motion for partial summary judgment in No. 13-cv-93-CMA-MJW that “[t]his is a straightforward breach of contract action arising from the sale of a defective or non-conforming loan by a loan originator to an investor”); id. at 2290 (identical argument by Lehman Holdings in its motion for partial summary judgment in No. 13-cv-88-CMA-MEH). In its five amended complaints and motions for partial summary judgment, Lehman Holdings referred to indemnification only as one of the ways that Universal American breached the contract, stating that the breaches consisted of failure to repurchase the loans “and/or fail[ure] to indemnify Lehman for its losses.” E.g., id. at 22. But Lehman Holdings never asserted indemnification as a cause of action distinct from the cause 29 of action for breach of contract. For example, in none of the five amended complaints is there any mention of Freddie Mac, Fannie Mae, or any payment by Lehman Holdings to a third party. Through the amended complaints and summary judgment briefing, Lehman Holdings presented the claim in district court solely as one for breach of contract, with indemnity as a remedy rather than a distinct cause of action. As a result, Lehman Holdings cannot avoid summary judgment by recasting its contract claim as an indemnity claim. See Maldonado v. City of Altus, 433 F.3d 1294, 1314 (10th Cir. 2006) (declining to consider a theory newly presented in the plaintiffs’ responses to summary judgment because the theories had not appeared in the complaints), overruled on other grounds as recognized by Metzler v. Fed. Home Loan Bank of Topeka, 464 F.3d 1164, 1171 n.2 (10th Cir. 2006). Lehman Holdings downplays the absence of an indemnity claim in the amended complaints, arguing that Universal American was not prejudiced by the absence of allegations involving liability to a third party. This contention confuses the issue. Universal American has not argued prejudice; it argues that Lehman Holdings pleaded indemnity as a remedy for breach of contract rather than as a “stand-alone” legal theory. We agree. Lehman Holdings cannot plead one theory to the district court and urge reversal on an entirely different theory. See id. 30 Lehman Holdings not only deviated from the contract claim pleaded in the amended complaints but distorted the nature of a true indemnity claim. An “indemnity claim is a separate substantive cause of action, independent of the underlying wrong.” McDermott v. City of New York, 406 N.E.2d 460, 462-63 (N.Y. 1980). In an indemnity claim, the plaintiff alleges that the defendant owed a duty to a third party rather than to the plaintiff itself: The gravamen of an indemnity claim is not that the defendant has breached some duty of care which it owes directly to the plaintiff, but rather that they both owe a duty to some third party and that because of defendant’s negligence or wrongful conduct the plaintiff has been held legally liable and cast in damages to the third party. It is the equitably imposed obligation which the actual wrongdoer owes to indemnify the other who has, without fault on its part, become legally liable and cast in damages to a third party by reason of that wrongdoing that is the only critical duty vis-a-vis plaintiff and defendant in an indemnity context. City of New York v. Lead Indus. Ass’n, Inc., 644 N.Y.S.2d 919, 923-24, 222 A.D.2d 119, 126-27 (N.Y. App. Div. 1996) (per curiam). An indemnity claim, like any other, requires proof of a harm. McCabe v. Queensboro Farm Prods., Inc., 239 N.E.2d 340, 342 (N.Y. 1968). The harm arises from the plaintiff’s payment to an injured third party rather than injury to the plaintiff itself. See, e.g., Dutton v. Mitek Realty Corp., 463 N.Y.S.2d 471, 472, 463 A.D.2d 769, 770 (App. Div. 1983). 31 Applying these characteristics of indemnity claims, the Second Circuit Court of Appeals addressed a similar issue in Peoples’ Democratic Republic of Yemen v. Goodpasture, Inc., 782 F.2d 346 (2d Cir. 1986). There too the issue of timeliness turned on whether the claim involved breach of contract or indemnity. Id. at 350. Concluding that the claim involved breach of contract, rather than indemnity, the Second Circuit Court of Appeals held that the claim was time-barred under the limitations period for contract actions. Id. at 350-52. The plaintiff (Yemen) bought grain from the defendant (Goodpasture), and the grain deliveries were late. Id. at 347-48. Because the deliveries were late, Yemen had to pay a third party (a shipowner) additional charges. Id. at 349. Yemen sued Goodpasture to recover the additional expenses within two years of paying the shipowner, but about eight years after Goodpasture had made the late deliveries. Id. at 348-49. The claim would be timely if it involved indemnity and untimely if it involved breach of contract. Id. at 350. The Second Circuit characterized the claim as one for breach of contract, even though Yemen had not incurred any loss until it paid the additional charges to a third party (the shipowner). Id. at 351. But Goodpasture’s alleged contractual duty ran to Yemen, not the shipowner. Id. As a result, Yemen’s claim involved breach of contract, rather than a “legitimate indemnity claim,” and the payments to the third party were 32 recoverable only as damages from Goodpasture’s alleged breach of contract. Id. at 350-52. In applying Yemen, we would regard Lehman Holdings’ claims as causes of action for breach of contract even if Lehman Holdings had pleaded them as claims for indemnity. “An action ‘does not become an action for indemnity merely because the pleader has so denominated it.’” Id. at 350 (quoting Bunker v. Bunker, 437 N.Y.S.2d 326, 328, 80 A.D.2d 817, 817 (N.Y. App. Div. 1981)). Like Yemen, Lehman Holdings had to pay third parties (Freddie Mac and Fannie Mae). But again like Yemen, Lehman Holdings had to pay these third parties only because Universal American breached its contract with Lehman Holdings. Just as Goodpasture’s contract created a duty to Yemen rather than the shipowner, Universal American’s contract created a duty to Lehman Holdings rather than Freddie Mac or Fannie Mae. Thus, Yemen would require us to base accrual of the cause of action on the date of Universal American’s breach of contract rather than the date of Lehman Holdings’ payment to a third party.