Opinion ID: 3172574
Heading Depth: 3
Heading Rank: 1

Heading: Because the claims brought by Aurora and Lehman

Text: Holdings accrued in 2006 and 2007, they are time-barred under Delaware’s three-year limitations period. To determine whether the claims preceded the suits by more than three years, we must first consider when the claims accrued. See Hahn Auto. Warehouse, Inc. v. Am. Zurich Ins. Co., 967 N.E.2d 1187, 1190 (N.Y. 2012) (“[T]he statute of limitations begins to run when a cause of action accrues.”). We conclude that the claims accrued when the alleged breaches took place in 2006 and 2007, rendering the claims time-barred under the Delaware statute of limitations. Aurora and Lehman Holdings pleaded a right to indemnity based on causes of action for breach of contract and breach of express warranty. For both types of claims, Aurora and Lehman Holdings allege harm from breaches of the representations and warranties contained in the Loan Purchase Agreements and refusal to repurchase the loans. Under either New York or Delaware law, these claims accrued when the breaches took place (in 2006 and 2007) rather than when Universal American and Standard Pacific refused to repurchase the loans. 8 See Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, No. 5140-CS, 8 Because both New York and Delaware law lead to the same result, we need not decide which state’s law governs on accrual. 23 2012 WL 3201139, at ,  (Del. Ch. Aug. 7, 2012) (unpublished) (noting that (1) “a cause of action for breach of representation accrues on the date of the contract’s closing” because that is when the breach occurs and (2) “Delaware’s statute of limitations for contract claims begins to run on the date of the breach, regardless of whether the plaintiff is ignorant of the cause of action”); W. 90th Owners Corp. v. Schlechter, 525 N.Y.S.2d 33, 35, 137 A.D.2d 456, 458 (N.Y. App. Div. 1988) (stating that a cause of action for breach of contract representations accrues when the breach took place). Lehman Holdings and Aurora waited until 2011 or later to sue. Because Delaware’s three-year limitations period began to run when the claims accrued in 2006 and 2007, all of the claims are time-barred under Delaware’s three-year period of limitations. B. We reject the contrary arguments by Aurora and Lehman Holdings. Aurora and Lehman Holdings argue that their claims accrued within three years of the suits. We disagree. 24 1. Aurora’s claims accrued when the sales took place rather than when Standard Pacific refused to repurchase the loans. In its briefing, Aurora argued that its claims had accrued when Standard Pacific refused to repurchase the loans, not when the breaches had taken place. But this argument is unsupportable under either New York or Delaware law. Before oral argument, the New York Court of Appeals decided ACE Securities Corp. v. DB Structured Products, Inc., 25 N.Y.3d 581 (N.Y. 2015). In oral argument, Aurora’s counsel conceded that under ACE Securities, the claims had accrued before Standard Pacific refused to repurchase the loans. See ACE Secs. Corp. v. DB Structured Prods., Inc., 25 N.Y.3d 581, 596-97 (N.Y. 2015) (rejecting the argument that “the cure or repurchase obligation transformed a standard breach of contract remedy, i.e. damages, into one that lasted for the life of the investment”). ACE Securities confirms that the refusal to repurchase the loans does not constitute a separate breach under New York law: “The cure or repurchase obligation is an alternative remedy, or recourse, for the [plaintiff], but the underlying act the [plaintiff] complains of is the same: the quality of the loans and their conformity with the representations and warranties.” Id. at 596 (emphasis in original). Because the repurchase obligation involves only the remedy, it does not affect application of the statute of limitations. Id. at 597, 599; see also Hahn Auto. Warehouse, Inc. 25 v. American Zurich Ins. Co., 967 N.E.2d 1187, 1191 (N.Y. 2012) (“[T]he statute of limitations . . . was triggered when the party that was owed money had the right to demand payment, not when it actually made the demand.”). Otherwise we would be treating a contractual remedy—a right to repurchase by the seller—as if it were its own cause of action. Lehman XS Trust, Series 2006–4N, by U.S. Bank Nat’l Ass’n v. Greenpoint Mortg. Funding, Inc., 991 F. Supp. 2d 472, 478 (S.D.N.Y. 2014). The same is true under Delaware law. In Delaware, a claim accrues at the time of the alleged unlawful act, not when the plaintiff suffers an injury. Wal–Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 319 (Del. 2004). Thus, if a contract imposes repurchase or cure obligations on the seller and the seller fails to repurchase or cure on demand, the claim would still accrue as soon as the defendant breaches the underlying representations and warranties. See, e.g., Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, No. 5140-CS, 2012 WL 3201139, at ,  (Del. Ch. Aug. 7, 2012) (unpublished) (holding that when the representations and warranties were made on the date of closing, the statute of limitations began to run on that date even though the contract imposed cure and repurchase obligations on the defendant). 26 2. Lehman Holdings’ claims accrued when the sales took place rather than when a third party was paid. Lehman Holdings argues that its claims accrued within three years. For this argument, Lehman Holdings relies on two points:
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.