Opinion ID: 8704066
Heading Depth: 3
Heading Rank: 2

Heading: Whether the Counterclaims State a Claim for Breach of the Custodial Agreement

Text: Having determined that the FDIC’s Counterclaims based on BOA’s alleged breach of the Custodial Agreement are not barred by the Agreement’s exculpatory provisions, the Court must now determine whether Counts 1 through 5 allege factual allegations sufficient to survive BOA’s motion to dismiss for failure to state a claim.
Count 1 pertains to BOA’s alleged obligations under paragraph 4B of the Custodial Agreement. Paragraph 4B provides as follows: [4]B. Possession of Mortgage Files. Following [BOA’s] receipt of each Mortgage File ..., [BOA] shall retain possession and custody thereof solely for the exclusive use and benefit of [Colonial] and [TBW] (to the extent of their respective ownership interests in the Participated Mortgage Loans) as the agent and bailee of [Colonial] and [TBW], and for purposes of perfecting [Colonial’s] and [TBW’s] ownership interest in the Participated Mortgage Loans and the related Mortgage File as contemplated by the Uniform Commercial Code of the State of Florida or other jurisdiction or such other applicable jurisdiction in effect and adopted thereby (it being understood that [BOA] has no responsibility to ensure such perfection or compliance with state law) ... [BOA] shall segregate and maintain continuous custody of all mortgage documents constituting the Mortgage File in secure and fire-resistant facilities in accordance with customary standards for such custody. 0Custodial Agreement at ¶ 4B.) (emphasis added.). The FDIC alleges that, pursuant to this provision, BOA was obligated to hold the Participated Mortgage Loans for the exclusive use and benefit of Colonial and for the purpose of perfecting Colonial’s ownership interest in said Loans. (Dkt. No. 25 at ¶ 68.). The FDIC claims that BOA breached this obligation with respect to the 4,808 Participated Mortgage Loans because it failed to hold the Loans for Colonial’s exclusive use, and engaged in acts that were inconsistent with “the purposes of perfecting Colonial’s ownership interests in these [Loans].” (Id. at ¶ 69.). BOA argues that Count 1 must be dismissed because the claim improperly relies on the premise that BOA owed an exclusive duty to Colonial, when in fact, it owed a duty to both Colonial and TBW. (See Dkt. No. 36 at 16.). According to BOA, the Counterclaims allege that it collateralized and sold the Loans “upon instructions from TBW.” (Id. (citing Dkt. No. 25 at ¶ 43.)). BOA asserts that because it owed the same duties to Colonial and TBW under paragraph 4B, it cannot have breached “its duties to the one by acting on instructions from the other.” (Id.). As such, BOA argues Count 1 must be dismissed. 20 In response, the FDIC contends that the fact that BOA owed duties to TBW under the Custodial Agreement in addition to those it owed to Colonial is irrelevant as to whether BOA breached its obligations to Colonial. According to the FDIC, BOA mischaracterizes Count 1. The FDIC asserts that it does not claim that BOA breached its duties to Colonial by following TBW’s instructions; rather, it alleges that Colonial should have received payment for the 4,808 loans before BOA collateralized the Loans and sold them to Freddie Mac. (See Dkt. No. 41 at 22 (citing Dkt. No. 25 at ¶ 42).). The Court agrees. Count 1 must be read in context with the rest of the Counterclaims, which unequivocally allege that BOA failed to ensure that Colonial received payment for the 4,808 Loans before they were pledged as collateral for the Ocala Notes and ultimately sold to Freddie Mac. (See Dkt. No. 25 at ¶¶ 36, 39, 43-49.). While not the most artfully pled allegation, Count 1 need not be read as BOA would have the Court read it (i.e., that BOA owed an exclusive duty to Colonial), a claim that would not be supported by paragraph 4B. Count 1 is more logically read to assert that BOA was obligated to hold the Loans for the exclusive use and benefit of Colonial with respect to Colonial’s 99% ownership interest in the Loans. Indeed, paragraph 4B states as much: “[BOA] shall retain possession and custody thereof solely for the exclusive use and benefit of [Colonial] and [TBW] (to the extent of their respective ownership interests in the Participated Mortgage Loans)....” (Custodial Agreement at ¶ 4B) (emphasis added). This Court is obligated to view the allegations in the Counterclaims in the light most favorable to the FDIC. Given this standard, and in light of the remaining allegations in the Counterclaims, the Court concludes that Count 1 states a plausible claim upon which relief may be granted. Therefore, BOA’s motion to dismiss Count 1 is denied.
Again citing paragraph 4B of the Custodial Agreement, Count 2 alleges that BOA was obligated to segregate and maintain continuous custody of any mortgages documents associated with a Participated Mortgage Loan that was transferred to BOA. (Dkt. No. 25 at ¶ 73.). The FDIC alleges that BOA failed to meet this obligation. (Id. at ¶ 74.). BOA argues that Count 2 must be dismissed because paragraph 4B simply instructs it on how to store the mortgage documents during the time that they are in its custody. (Dkt. No. 36 at 17-18 (noting that paragraph 4B requires BOA to store the documents in “secure and fire-resistant facilities in accordance with customary standards for such custody.”)). BOA accuses the FDIC of reading into this provision a requirement that does not exist-namely, that BOA maintain custody of the documents “in perpetuity.” (Id. at 18.). In response, the FDIC argues that the Counterclaims allege that BOA was required to segregate the loans in order to “protect Colonial’s ownership interest and that BOA failed to perform as promised.” Count 2, itself, makes no such allegation. However, the claim incorporates the allegations contained in Count 1, which do make such an allegation. (Dkt. No. 25 at ¶72.). And, as this Court determined above, paragraph 4B plausibly supports such assertions. Accordingly, BOA’s motion to dismiss is denied as to Count 2.
In Count 3, the FDIC alleges that paragraph 4D of the Custodial Agreement obligated BOA to exercise reasonable care in the custody and preservation of the items that it received from Colonial, and that BOA failed to fulfill this obligation with respect to the Participated Mortgage Loans. (Dkt. No. 25 at ¶¶ 78-79.). Paragraph 4D of the Custodial Agreement reads as follows: D. Care of Collateral. [BOA] shall exercise reasonable care in the custody and preservation of the Collateral in its possession to the extent required by statutes and in any event shall be deemed to have exercised reasonable care if it (i) takes such action for that purpose as [Colonial] shall reasonably request in writing (but no omission to comply with any request of [Colonial] shall of itself be deemed a failure to exercise reasonable care), or (ii) exercises at least the same degree of care as it would exercise with respect to a like transaction in which it alone is interested. (Custodial Agreement at ¶ 4D) (emphasis added). BOA argues that Count 3 must be dismissed because paragraph 4D only requires it to exercise reasonable care “to the extent required by applicable statute,” and the FDIC does not allege that BOA failed to comply with “any statutory duty of care.” (Dkt. No. 36 at 19.). In other words, BOA argues, because the FDIC’s claims rest on a provision that can be breached only be violating a statute, the FDIC must identify what statute it allegedly breached. The FDIC counters that it is not required to reference a specific statute in its pleadings in order to survive a motion to dismiss. Citing Skinner v. Switzer, — U.S. -, 131 S.Ct. 1289, 179 L.Ed.2d 233 (2011), the FDIC argues that the Federal Rules of Civil Procedure do not require that a complaint pin a plaintiffs claim to relief to a precise legal theory. (Dkt. No. 41 at 25.). The Court finds Skinner v. Switzer inapplicable. The FDIC gives no indication whatsoever of which statute BOA allegedly ran afoul. In the absence of a statute, the Court must dismiss the claim. If the FDIC does have a statute on which it relies for this claim, it may move to amend the Counterclaims. In the meantime, Count 3 is dismissed for failure to state a claim upon which relief may be granted.
Citing paragraph 7A of the Custodial Agreement, the FDIC alleges in Count 4 that BOA breached its duty to return to Colonial any Participated Mortgage Loan that was not purchased within six business days of BOA’s receipt of the Loan. BOA argues that this claim must be dismissed because it had no duty to act under paragraph 7A unless and until instructed to do so by TBW. Paragraph 7A states: 7. RELEASE OF COLLATERAL A. Release of Collateral to [TBW] or its Designee. [BOA] shall ... upon receipt from, [TBW] of a Request for Re lease of Documents and Receipt release any Collateral specified in such request and [BOA] shall thereupon cause delivery of the same to [TBW] or its designee. Any such Request for Release of Documents and Receipt shall be subject to the prior approval of [Colonial], at its sole and absolute discretion. In the event that a Participated Mortgage Loan is not purchased by Ocala within 6 Business Days from receipt of the related Mortgage file, [TBW] shall request, and [BOA] shall deliver, such Mortgage File to [Colonial]. 0Custodial Agreement at ¶ 7A.) (emphasis added). As BOA correctly points out, the FDIC did not allege in the Counterclaims that TBW ever issued a request for a release of an outstanding Participated Mortgage Loan. Apparently conceding this point, the FDIC attempts to avoid the ramifications of this failure by arguing that the word “and” in the last sentence of paragraph 7A created an independent requirement on the part of BOA to deliver the Loans, regardless of whether TBW first requested them. The FDIC argues that “[t]his independent obligation is sensible because [BOA], the entity in possession of the [L]oans and [Ocala’s] bank accounts, was in the best position to know whether a [L]oan had been purchased within six days.” (Dkt. No. 41 at 26.). At a minimum, the FDIC argues, paragraph 7A is ambiguous and, as such, Count 4 cannot be resolved on a motion to dismiss. (Id.). The Court agrees as to the ambiguity of Count 4. While the FDIC’s reading of paragraph 7A may be a stretch, in deciding a motion to dismiss, this Court is required to evaluate all inferences derived from the allegations contained in the Counterclaims in the light most favorable to the FDIC. In doing so, this Court concludes that Count 4 survives BOA’s motion to dismiss.
In Count 5, the FDIC alleges that under paragraph 17K of the Custodian Agreement, BOA represented and warranted that it did not have at the time of execution, and would not hold during the existence of the Agreement, any interest adverse to Colonial, by way of security or otherwise, in the Participated Mortgage Loans. (Dkt. No. 25 at ¶ 88.). Paragraph 17K states: K. No Adverse Interest. By execution of this Agreement, [BOA] represents and warrants that it currently holds, and during the existence of this Agreement shall hold, no interest adverse to [Colonial] or [TBW], by way of security or otherwise, in any Participated Mortgage Loan, and hereby waives and releases any such interest which it may have in any Participated Mortgage Loan as of the date hereof. (Custodial Agreement at ¶ 17k.). The FDIC maintains that BOA breached this warranty and argues that the Court need look no further than the Amended Complaint — in which BOA asserts a security interest in some of the Participated Mortgage Loans — to see evidence of the breach. (Id. at ¶¶ 89-90.). BOA counters that paragraph 17K only applies to BOA’s interests in its own capacity. (Dkt. No. 36 at 20.). BOA disavows that it brought the underlying action in its own capacity; rather, it filed suit “in its capacity as the representative of the Ocala Facility.” (Id. at 21.). Furthermore, the “Custodial Agreement contemplated ‘that BOA would obtain security and possessory interests in the loans on behalf of Ocala’s Secured Parties.’ ” (Id.). The FDIC responds that paragraph 17K is not clearly and unambiguously limited to BOA in its own capacity. (Dkt. No. 41 at 27.). The “clear purpose” of the Custodial Agreement was to ensure that Colonial’s ownership interest in the Loans was protected. The Agreement, the FDIC argues, contemplated that BOA would obtain a security interest on behalf of the Ocala Facility after Colonial received payment for its interest in the Loans. Because BOA failed to remit payment, Colonial’s interest was not satisfied, and the requirements of paragraph 17K continue to apply. (Id. at 28.). The Court agrees. At a minimum, paragraph 17K is ambiguous. Furthermore, as discussed previously at Sections II.B.-D., it is not entirely clear that BOA does not seek relief for damages it allegedly incurred in its own capacity. As such, Count 5 will not be dismissed.