Opinion
21-CV-3089 (GBD) (RWL)
07-28-2022
MSR Trust, Plaintiff/Counterclaim-Defendant, v. NATIONSTAR MORTGAGE LLC d/b/a Mr. Cooper, Defendant/Counterclaim-Plaintiff.
REPORT AND RECOMMENDATION TO HON. GEORGE B. DANIELS: MOTION TO DISMISS COUNTERCLAIM
ROBERT W. LEHRBURGER, UNITED STATES MAGISTRATE JUDGE
Plaintiff MSR (“MSR”), a statutory business trust, filed a lawsuit in New York state court, which was subsequently removed to federal court, alleging breach of contract and seeking damages as well as declaratory relief. Defendant Nationstar Mortgage LLC, d/b/a Mr. Cooper (“Nationstar”) asserted a counterclaim for breach of contract and declaratory judgment. Currently before the court is MSR's motion to dismiss Nationstar's counterclaims pursuant to Federal Rule of Civil Procedure 12(b)(6) (“Rule 12(b)(6)”). For the reasons set forth below, I recommend that MSR's motion be GRANTED IN PART and DENIED IN PART.
FACTUAL BACKGROUND
MSR filed this action against Nationstar for breach of two contracts by which MSR purchased the rights to service certain groups of loans. One contract was for loans purchased from the government-sponsored enterprise known as Freddie Mac (the “Freddie Mac Agreement” or, simply, the “Agreement”); the other contract was for loans purchased from the government-sponsored enterprise known as Fannie Mae (the “Fannie Mae Agreement”). Nationstar's counterclaims concern only the Freddie Mac Agreement. For purposes of the motion to dismiss, the Court accepts as true all well-pled factual allegations of Nationstar's Amended Answer and Counterclaim (Dkt. 43) (“Amended Counterclaim” or “AC”), and draws all reasonable inferences in favor of Nationstar as the nonmoving party.
The Freddie Mac Agreement is attached to MSR's Complaint as Exhibit A. (Dkt. 1-1 at ECF 27-121.)
A. The Freddie Mac Agreement
On January 31, 2014, Nationstar and MSR entered into the Agreement, in which Nationstar agreed to purchase from MSR the right to service and collect payments from servicing residential loans guaranteed by Freddie Mac. (AC ¶ 115-18.) Those loans were originated by third parties, serviced by MSR, and subserviced by a third-party servicer prior to Nationstar's purchase of the servicing rights. (Id. ¶ 119.) As a result, Nationstar received several representations about the loans from MSR in the Agreement as well as indemnification rights. (Id. ¶¶ 119-20, 123-25; see generally Agreement Articles V, XI.) The provisions most relevant here include the following.
1. Representations, Warranties, And Covenants
Section 5.01 of the Freddie Mac Agreement sets forth representations and warranties regarding MSR's and the underlying loans compliance with any applicable contractual, regulatory, and judicial requirements, MSR's ownership of the servicing rights which it purports to sell through the Agreement; the validity and content of the Servicing Agreements for the underlying loans; and that the pools of underlying loans have been certified and are eligible for recertification.
Section 5.03 represents that advances paid by Nationstar to MSR for real-estate-owned (“REO”) properties are eligible for reimbursement.
A real estate owned (REO) property is a property owned by a lender because it failed to sell in a foreclosure auction following the borrower's default. Chen, James. Real Estate Owned (REO), Investopedia (Dec. 16, 2020) https://www.investopedia.com/terms/r/ realestateowned.asp.
Section 5.04 represents that the information provided by MSR to Nationstar regarding the underlying loans is true, accurate, and complete.
Section 5.05 represents that the files provided for each underlying loan contain all documents and instruments required for servicing the loan.
Section 5.06 represents that, except for loans listed in Exhibit J to the Agreement, there are no pending claims or demands against MSR for repurchase of any of the loans.
Section 5.09 represents that there is no existing physical damage to any of the properties subject to the underlying mortgages that would materially affect the value of the property or loan or the eligibility of the loan for insurance benefits except where the damage would not be Nationstar's legal responsibility.
Section 5.10 represents that MSR retains existing obligations under the servicing contracts arising out of breaches of the representations and warranties in connection with the sale of the underlying loans to Freddie Mac and those that arise out of failure of MSR or prior servicers to comply with their servicing obligations prior to the Servicing Transfer Date (the date after which the servicing rights and responsibilities for the loans are transferred to Nationstar, identified in § 1.01 as March 17, 2014).
The Agreement also contains covenants by MSR regarding the servicing rights and underlying loans. (AC ¶¶ 121-22; see generally Agreement Article VII.) One such covenant is that MSR will be responsible for certain tax liabilities associated with the loans incurred prior to or within a certain time after the Servicing Transfer Date. (AC ¶ 122; Agreement § 7.04.)
2. Indemnification
In § 11.01 of the Agreement, MSR agreed to indemnify Nationstar for “any Losses suffered or incurred … that result from or arise out of: (a) Any material breach of any representation or warranty by Seller [i.e., MSR]; (b) Any non-fulfillment of any covenant or other obligation of Seller (or Subservicer on Seller's behalf) contained in this Agreement …; (c) Any Prior Servicing Errors; and (d) Any Prior Origination Errors.” (AC ¶ 123; Agreement § 11.01.) “Losses” are defined as “[a]ny and all direct, actual and out-of-pocket losses, damages, deficiencies, claims, costs, penalties or expenses, including reasonable attorneys' fees and disbursements ….” (AC ¶ 124; Agreement § 1.01.) MSR's indemnification obligation does not extend to losses arising out of or resulting from Nationstar's servicing failures that occur after the Servicing Transfer Date of March 17, 2014. (AC ¶¶ 125-26; Agreement § 11.01.)
For its part, Nationstar, as Purchaser, agreed to timely notify MSR of the assertion of any claims for which Nationstar sought indemnification:
Purchaser shall notify Seller promptly after receiving written notice of the assertion of any litigation, proceedings, governmental investigations, orders, injunctions, decrees or any third party claims subject to indemnification under this Agreement (each, a “Third Party Claim”), provided, however the failure to give such notification will not affect the indemnification provided hereunder unless Seller is materially prejudiced by such failure and had no actual knowledge of such Third Party Claim, and then only to the extent of such prejudice.(Agreement § 11.01.)
Further related to indemnification, the Agreement contains an “Indemnification Holdback” provision. That provision provides that Nationstar will hold back $4,000,000 of the purchase price from which Nationstar may set off losses arising out of, inter alia, MSR's breaches of representations, warranties, or covenants, prior servicing errors, and prior origination errors:
Purchaser shall additionally hold back from the amount paid to Seller in accordance with Section 3.01(a)(ii) an amount equal to $4,000,000.00 (the “Indemnification Holdback”). Seller hereby grants Purchaser a right of setoff against the Indemnification Holdback in the event that (X) Purchaser incurs any Loss for which Purchaser is entitled to indemnification by Seller pursuant to Article XI, (Y) Purchaser is entitled to payment of a Purchase Price Recapture Amount as provided in Section 11.03, or (Z) Seller fails to reimburse Purchaser for Advances with respect to the REO Loans in accordance with Section 3.02(f) …(Agreement § 3.01(a)(iv).)
To exercise its setoff rights, however, Nationstar is required to provide written notice. The Indemnification Holdback provision thus goes on to say:
provided, however, that with respect to the setoffs described in clauses (X) or (Y), Purchaser shall not exercise such right of setoff unless and until it has provided Seller with written notice of Purchaser's demand for cure and/or indemnification against such Loss or payment of a Purchase Price Recapture Amounts as required by the applicable provisions of Article XI, which notification shall include notification by email to USCIBMSRtrust@us.natixis.com, and Seller has not, within ten (10) Business Days after such indemnification or Purchase Price Recapture Amount is due pursuant to Article XI, either (A) satisfied such indemnification or Purchase Price Recapture Amount obligation in accordance with the applicable terms and conditions of Article XI, or (B) disputed in writing in good faith whether such indemnification or Purchase Price Recapture Amount is due (in which event Purchaser may setoff any such amounts that are not subject to such dispute).(Id.)
The Indemnification Holdback provision requires Nationstar to pay back the Indemnification Holdback, less any setoff, four years after the sale date, except that amounts disputed by MSR need not be paid until the parties agree in writing or there is a final and non-appealable judgment resolving the dispute:
The remaining portion of such Indemnification Holdback shall be paid no later than the date four (4) years after the Sale Date; provided, however, that notwithstanding the foregoing, Purchaser shall not be required to pay any remaining Indemnification Holdback setoff amount being disputed by Seller until such dispute is resolved (a) by mutual agreement of the Parties in writing or (b) pursuant to a final and nonappealable judgment by a court of competent jurisdiction. In the event that Purchaser, Seller and a parent or affiliate of Seller execute a guaranty of such parent or affiliate of the indemnification, Purchase Price Recapture Amount and REO Loan Advance reimbursement obligations of Seller hereunder, in form and substance mutually agreed to thereby, the remaining portion of the Indemnification Holdback shall be paid to Seller upon such execution; provided, however, that neither Party, nor any parent or affiliate of Seller, shall have any obligation to negotiate or enter into such a guaranty.(Id., see also AC ¶¶ 131 -32.)
Nationstar alleges that, notwithstanding the Indemnification Holdback provision, it is entitled to indemnification for all of its losses under the Agreement even if they exceed the $4,000,000 holdback amount, and that § 11.01 does not limit the time in which Nationstar may seek and be entitled to indemnification regardless of the four-year deadline to repay the Holdback Amount less any setoffs. (AC ¶¶ 133-34.)
B. Nationstar Demands Indemnification And Asserts Its Setoff Rights
On January 11, 2018, Nationstar mailed and emailed a Notice of Indemnification Claims (“Freddie Mac Letter”) to MSR demanding that MSR indemnify Nationstar for losses over $4,000,000. (AC ¶¶ 135-36.) Nationstar followed up six days later with a Revised Notice of Indemnification Claims (“Revised Freddie Mac Letter”), updating the dollar amounts claimed in the Freddie Mac Letter. (Id. ¶ 137.)
The Revised Freddie Mac Letter, dated January 17, 2018, is attached as Exhibit 1 to the Declaration of Peter Bayard in support of MSR's motion to dismiss. (Dkt.47). The Court refers to the Freddie Mac Letter and Revised Freddie Mac Letter together as the “Freddie Mac Letters.”
As characterized by Nationstar, the Freddie Mac Letters set forth five categories of claims for indemnification and set out the representations and warranties MSR allegedly breached that give rise to the claims and Nationstar's entitlement to indemnification. (Id. ¶ 138; Revised Freddie Mac Letter at 1-3.) In particular, the Freddie Mac Letters identified the following categories of losses and corresponding Sections of the Agreement that were purportedly breached: Category A: claims arising out of advances, where MSR allegedly breached the representations and warranties in §§ 5.01, 5.03, 5.04, or 5.09; Category B: claims arising out of mortgage insurance curtailments, where MSR allegedly breached §§ 5.01, 5.03, 5.04, or 5.05; Category C: claims arising out of Freddie Mac compensatory fees, where MSR allegedly breached §§ 5.01 or 5.05; Category D: claims for which Nationstar had previously provided indemnification notices and for which MSR has not yet indemnified Nationstar, arising out of alleged breaches of §§ 5.01, 5.04, 5.05, 5.06, 5.09, and/or 7.04; and Category E: claims arising from repurchase demands by Freddie Mac where MSR allegedly breached §§ 5.01, 5.03, 5.04, 5.05, 5.06, 5.09, or 5.10. (AC ¶ 138.)
The Freddie Mac Letters also included schedules corresponding to each of the categories of losses which list, for each claimed loss, the Nationstar loan number and prior servicer loan number, the amount of the loss, and a very brief description. (Id. ¶ 142-45; Revised Freddie Mac Letter Schedules A-E.)
Yet, for every category, the Freddie Mac Letters merely assert that MSR is obligated to indemnify Nationstar “to the extent that” MSR has committed breach. For example, as to Category A (advances):
To the extent that Advances have not or will not be reimbursed because the respective Mortgage Loan was not serviced, underwritten or originated in accordance with all Applicable Requirements; ... or to the extent that MSRT or a prior servicer has failed to timely make required payments to Third Parties, including without limitation taxing authorities or the payment of insurance premiums; or to the extent that the Mortgaged Property was damaged prior to transfer to Nationstar; or the extent that funds and proceeds were not properly applied by MSRT or a prior servicer; or to the extent that Nationstar was required to make payments to Third Parties due to missing documentation from the Collateral File, Credit File or Servicing File; or to the extent that recovery of Advances was or will be impaired due to inaccurate information received from MSRT, MSRT has breached the Agreement. MSRT has breached the Agreement, including without limitation, Section 5.01, 5.03, 5.04, or 5.09. Nationstar is entitled to indemnification under the Agreement, including without limitation, Sec. 11.01. … Nationstar has incurred or has begun to accrue $12,110,354 in Losses with respect to such matters.(Revised Freddie Mac Letter at 2 (emphasis added).)
As another example, Nationstar asserted the following as to Category C (agency compensatory fees):
The respective Mortgage Loans det ailed on Schedule C were not serviced, underwritten or originated in accordance with all Applicable Requirements, resulting in the imposition of compensatory fees for which Freddie Mac requires payment. Such servicing failures include without limitation, failure to pursue foreclosures in accordance with Investor timelines. To the extent that delays occurred or such fees were imposed due to Prior Servicing Errors or Prior Origination Errors, MSRT has breached the Agreement. To the extent delays occurred or Investor compensatory fees have been imposed due to incomplete Collateral File, Credit File or Servicing File, including without limitation the complete chain of title, MSRT has breached the Agreement. To the extent delays occurred or such fees were imposed due to inaccurate information received from MSRT, MSRT has breached the Agreement, including without limitation, Sec. 5.01 or 5.05. Purchaser is entitled to indemnification under the Agreement, including without limitation Sec. 11.01 or 11.05. …, Nationstar has incurred or has begun to accrue $3,686,373 in Losses with respect to such matters.(Id. at 3 (emphasis added).) Nationstar presented its claims in similarly equivocal terms as to other categories. (Id. at 2-4.)
On January 22, 2018, MSR responded to the Freddie Mac Letters by disputing the claims for indemnification and refusing to indemnify Nationstar for any losses. (AC ¶ 147.) Because Nationstar believed it was entitled to indemnification and that MSR's dispute was not made in good faith, Nationstar retained the $4,000,000 Indemnification Holdback in exercise of its setoff right. (Id. ¶ 148.)
Nationstar further alleges that it has identified and provided written notice to MSR of at least 265 indemnifiable losses, including losses attributable to: prior origination errors; prior servicer errors; mortgage insurance issues; Freddie Mac compensatory fees for non-performing loan sales; advances not reimbursed by MSR; and repurchase demands made by Freddie Mac for which MSR has not paid Nationstar as required by the Agreement. (Id. ¶¶ 151-53.) Nationstar also claims that it may continue to incur indemnifiable losses during the pendency of the litigation. (Id. ¶ 154.)
PROCEDURAL HISTORY
On March 5, 2021, MSR filed a complaint against Nationstar in the Supreme Court of the State of New York alleging breach of the Freddie Mac Agreement and Fannie Mae Agreement and seeking a declaratory judgment. (Dkt.1-1). Nationstar removed the action from state court to this Court on April 9, 2021, asserting diversity jurisdiction under 28 U.S.C. § 1332(a)(1). (Dkt. 1 (“Notice of Removal”).) MSR moved to remand the case to state court, alleging lack of complete diversity. (Dkt. 11.) The motion was fully briefed on June 1, 2021, and subsequently referred to me for a Report and Recommendation. (Dkts. 11, 19, 23, 24.) After oral argument, I recommended denial of MSR's motion. (Dkt. 31.) This Court's Report and Recommendation was adopted by Judge Daniels on February 9, 2022. (Dkt. 35.) Thereafter, Nationstar filed its answer and counterclaim for a declaratory judgment against MSR on February 23, 2022. (Dkt. 36.)
MSR filed a motion to dismiss Nationstar's counterclaim on March 16, 2022. (Dkts. 38-39.) MSR argued that Nationstar's counterclaim and allegations on which it is based are “so vague that the declaration would amount to nothing more than an opinion advising what the law would be on facts that have not been alleged” and that a declaration that Nationstar is entitled to indemnification would not serve a useful purpose. (Dkt. 39.) This Court then ordered Nationstar to file either (1) an amended counterclaim addressing MSR's concerns raised in the motion to dismiss, or (2) a letter stating that notwithstanding MSR's motion, Nationstar opts not to file an amended counterclaim. (Dkt. 40.)
On March 31, 2022, Nationstar filed its Amended Answer and Counterclaim, which added a claim for breach of contract and some additional factual allegations. (Dkt. 43.) On April 28, 2022, MSR filed the instant motion to dismiss the Amended Counterclaim. (Dkts. 46-48.) MSR argues that Nationstar's Amended Counterclaim mischaracterizes the Freddie Mac Letters and does not allege sufficient facts to put MSR and the Court on notice of the alleged misconduct giving rise to Nationstar's breach of contract counterclaim. MSR further argues that Nationstar's claim for declaratory judgment is unclear, will not serve a useful purpose or offer relief from uncertainty, and is duplicative of the breach of contract counterclaim. (MSR Mem.)
“MSR Mem.” refers to MSR's Memorandum of Law in Support of Plaintiff/Counterclaim-Defendant MSR Trust's Motion to Dismiss Amended Counterclaim (Dkt. 48).
On May 26, 2022, Nationstar filed its opposition brief. (Nationstar Mem.) Nationstar argues that its breach of contract counterclaim adequately alleges that MSR failed to comply with its indemnification obligations under the Agreement, that its written demand for indemnification satisfies the relevant notice requirement of the Agreement, and that, in any event, MSR is aware of Nationstar's losses entitling MSR to indemnification. (Id.) Nationstar further contends that it has established a claim for declaratory relief because a judicial declaration that Nationstar is entitled to indemnification serves a useful purpose and would provide the parties relief from uncertainty. (Id.) On June 9, 2022, MSR filed its reply brief. (MSR Reply.) The matter has been referred to me for a Report and Recommendation.
“Nationstar Mem.” refers to Nationstar's Defendant-Counterclaimant's Memorandum of Law in Opposition to Motion to Dismiss Amended Counterclaim (Dkt. 53).
“MSR Reply” refers to MSR's Reply Memorandum of Law in Support of Plaintiff/Counterclaim-Defendant MSR's Motion to Dismiss Amended Counterclaim (Dkt. 55).
Dkt. 24 (referring all dispositive motions).
LEGAL STANDARD ON MOTION TO DISMISS
The same standard applies to a motion to dismiss a counterclaim that applies to a motion to dismiss a complaint. See, e.g., Ohr Somayach/Joseph Tanenbaum Educational Center v. Farleigh International Ltd., 483 F.Supp.3d 195, 202 (S.D.N.Y. 2020); Gerdau Ameristeel U.S. Inc. v. Ameron International Corp., No. 13-CV-7169, 2014 WL 3639176, at *2 (S.D.N.Y. July 22, 2014); MTV Networks v. Curry, 867 F.Supp. 202, 203 (S.D.N.Y.1994); Reeves v. American Broadcasting Cos., 580 F.Supp. 84, 89 (S.D.N.Y.1983), aff'd, 719 F.2d 602 (2d Cir.1983). Under Rule 12(b)(6), a pleading may be dismissed for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). To survive a Rule 12(b)(6) motion, a complaint must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1974 (2007). A claim is facially plausible when the factual content pleaded allows a court “to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949 (2009).
Although MSR has moved to dismiss pursuant to Rule 12(b)(6) for failure to state a claim for which relief can be granted, it also invokes Federal Rule of Civil Procedure 8(a)(2) (“Rule 8”), which requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” (See MSR. Mem. at 1, 3, 8-9, 18.) Dismissal pursuant to Rule 12(b)(6) is merely the consequence of failing to comply with Rule 8. Rule 8's requirement that the pleading set forth “a claim showing the pleader is entitled to relief” thus is echoed in the Rule 12(b)(6), which provides for dismissal for “failure to state a claim upon which relief can be granted.”
“Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Twombly, 550 U.S. at 557, 127 S.Ct. at 1966). In considering a motion to dismiss, a district court “accept[s] all factual claims in the complaint as true, and draw[s] all reasonable inferences in the plaintiff's favor.” Lotes Co. v. Hon Hai Precision Industry Co., 753 F.3d 395, 403 (2d Cir. 2014) (internal quotation marks omitted). However, this tenet is “inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678, 129 S.Ct. at 1949. “[R]ather, the complaint's factual allegations must be enough to raise a right to relief above the speculative level … i.e., enough to make the claim plausible.” Arista Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010) (internal quotation marks and brackets omitted). A complaint is properly dismissed where, as a matter of law, “the allegations in [the] complaint, however true, could not raise a claim of entitlement to relief.” Twombly, 550 U.S. at 558, 127 S.Ct at 1966.
For the purposes of considering a motion to dismiss under Rule 12(b)(6), a court is generally confined to the facts alleged in the complaint. See Cortec Industries v. Sum Holding LP., 949 F.2d 42, 47 (2d Cir. 1991). A court may, however, consider additional materials, including documents attached to the complaint, documents incorporated into the complaint by reference, public records, and documents that the plaintiff either possessed or knew about, and relied upon, in bringing the suit. See Kleinman v. Elan Corp., 706 F.3d 145, 152 (2d Cir. 2013) (quoting ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007)). In that regard, if “a document relied on in the complaint contradicts allegations in the complaint, the document, not the allegations, control, and the court need not accept the allegations in the complaint as true.” Poindexter v. EMI Record Group Inc., No. 11-CV-559, 2012 WL 1027639, at *2 (S.D.N.Y. March 27, 2012) (quoting Barnum v. Millbrook Care Ltd. Partnership, 850 F.Supp. 1227, 1232-33 (S.D.N.Y.1994)).
DISCUSSION
A. The Breach Of Contract Counterclaim Should Be Dismissed In Part
MSR argues that Nationstar has not pled sufficient facts, even considering the Freddie Mac Letters along with the Amended Counterclaim, to either put MSR and the Court on notice of MSR's alleged actionable conduct or to state a claim entitling Nationstar to indemnification. The Court largely agrees. Of the five categories of alleged losses -loss Categories A, B, C, and E, Nationstar has failed to sufficiently state claim with respect four of them. With respect to Category D, however, Nationstar has sufficiently stated a claim.
1. Breach Of Contract And Indemnification Requirements
As agreed by the parties, the Agreement and the parties' “obligations, rights and remedies” thereunder are to be construed under New York law. (Agreement § 12.09); see AEI Life LLC v. Lincoln Benefit Life Co., 892 F.3d 126, 132 (2d Cir. 2018) (“a federal court sitting in diversity jurisdiction applies the choice of law rules of the forum state” and under “New York law, courts will generally enforce choice-of-law clauses because contracts should be interpreted so as to effectuate the parties' intent”) (cleaned up).
This opinion uses a “(cleaned up)” parenthetical to indicate that internal quotation marks, brackets, citations, emphases, or combinations thereof have been omitted from the quoted source. Any further alterations or emphases added to the quoted source by this Court are noted in a separate parenthetical.
Under New York law, “[t]o prevail on a breach of contract claim … a plaintiff must prove (1) a contract; (2) performance of the contract by one party; (3) breach by the other party; and (4) damages.” Terwilliger v. Terwilliger, 206 F.3d 240, 245-46 (2d Cir. 2000) (internal quotation marks omitted). “Plaintiffs bear the burden of proof as to all elements of a breach of contract claim.” Choquette v. Motor Information Systems, Inc., No. 15-CV-9338, 2017 WL 3309730, at *3 (S.D.N.Y. Aug. 2, 2017).
To state a claim for breach of an indemnification provision, a party must plead sufficient facts that would demonstrate its entitlement to indemnification under a strict reading of the contract. “When a party is under no legal duty to indemnify, a contract assuming that obligation must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed … The promise should not be found unless it can be clearly implied from the language and purpose of the entire agreement and the surrounding facts and circumstances.” Hooper Associates, Ltd. v. AGS Computers., Inc., 74 N.Y.2d 487, 491-92, 549 N.Y.S.2d 365, 367 (1989); accord Sparta Commercial Services v. DZ Bank, 680 Fed.Appx. 17, 21 (2d Cir. 2017); PPI Enterprises (U.S.), Inc. v. Del Monte Foods Co., No. 05-6885-CV, 2006 WL 3370698, at *1 (2d Cir. Nov. 20, 2006).
For purposes of this motion, there is no dispute that the parties entered into a contract, that the contract obligates MSR to indemnify Nationstar in certain circumstances, and that partial performance of the contract occurred when Nationstar paid for the servicing rights. The pivotal question here, however, is whether Nationstar has sufficiently pled facts demonstrating breach of MSR's obligation to indemnify, as courts have dismissed, or entered summary judgment on, claims for indemnification where the claimant fails to sufficiently allege or establish facts showing that the right to indemnification has been triggered. E.g., Edart Leasing Co., LLC v. Ryder Truck Rental, Inc., No. 14-CV-7751, 2015 WL 4524313, at *4 (S.D.N.Y. July 6, 2015), aff'd, 646 Fed.Appx. 33 (2d Cir. 2016) (dismissing breach of contract claim arising out of nonpayment of indemnification holdback because plaintiff “ha[d] not alleged that all pending indemnification claims have been resolved” as required by the contract, so its allegations, even if true, “fail[ed] to establish that [defendant] is obligated to make final repayment”); Sellitti v. TJX Companies, Inc., 127 A.D.3d 724, 726, 6 N.Y.S.3d 559 (2d Dep't 2015) (denying defendant's motion for summary judgment on indemnification crossclaim because “[defendant] did not make a prima facie showing that the indemnification provision evinced [codefendant's] clear intention to indemnify [defendant] absent proof of actual negligence on the part of [codefendant]”); Alfaro v. 65 W. 13th Acquisition, LLC, 74 A.D.3d 1255, 1256, 904 N.Y.S.2d 205, 207 (2d Dep't 2010) (affirming denial of motion for summary judgment on contractual indemnification claim because “it cannot be clearly implied from the language of the indemnification provision of the contract between Masterbuilders and Urban Outfitters that the parties intended for Masterbuilders to indemnify Urban Outfitters based merely on a claim that Masterbuilders was negligent, without establishing such negligence”).
2. Import Of The Freddie Mac Letters
In opposing the motion to dismiss, Nationstar relies on the Freddie Mac Letters. As the Freddie Mac Letters are described in detail and relied on in the counterclaim (see, e.g., AC ¶¶ 135-46), the Court may, and does, consider them in deciding the motion. See Kleinman, 706 F.3d at 152.
Nationstar argues that the Freddie Mac Letters necessarily trigger, and provide sufficient notice of, its right of indemnification because those letters complied with the notice requirements under the Agreement. Nationstar further argues that the sufficiency of the notice is a factual issue that cannot be resolved on a motion to dismiss. (Nationstar Mem. at 12-13 and n.3.) But Nationstar's arguments miss the point. Whether or not the Freddie Mac Letters complied with the Agreement is a different question than whether Nationstar has sufficiently pled its claims to survive dismissal under Rule 12(b)(6). Merely providing a notice of indemnification pursuant to the Agreement does not necessarily suffice to assert a claim for breach of MSR's obligation to indemnify. See, e.g., Maspeth Federal Savings & Loan Association v. Fidelity Information Servs., LLC, 275 F.Supp. 3D 411, 414, 418 (E.D.N.Y. 2017) (dismissing contractual indemnification claim because, even though plaintiff provided written notice of a claim and demand for indemnification, the claimed losses fell outside the scope of the parties' agreements); Nationstar Mortgage, LLC v. Ocwen Loan Servicing, LLC, 194 A.D.3d 490, 491, 149 N.Y.S.3d 16, 17-18 (1st Dep't 2021) (affirming dismissal of claim for indemnification even though “Nationstar sent Ocwen a $15 million general demand for indemnification, with an attachment of over 500 pages of spreadsheets purporting to list all losses suffered by Nationstar under the purchase agreement”).
Whether or not the Freddie Mac Letters complied with the Agreement's notice requirement under § 3.01(a)(iv) is a separate inquiry that the Court does not reach in deciding this motion.
3. Insufficiently Pled Loss Categories A, B, C, And E
Taking into account the Amended Counterclaim along with the Freddie Mac Letters, Nationstar has failed to plead facts establishing its entitlement to indemnification for most of the categories of losses asserted. Nationstar set forth five categories of losses, and stated in a conclusory fashion that those losses arose from MSR's breaches of one or more representations and warranties or covenants . (AC ¶ 138.) However, the Amended Counterclaim contains virtually no facts related to the circumstances around many of the claimed losses that would allow the Court to infer that the losses arose out of MSR's breach of any of the provisions of the Agreement rather than Nationstar's own conduct or liability. Only in the former scenario would Nationstar be entitled to indemnification, and only loss Category D claims meet the requisite standard. Nationstar's claims for losses in Categories A-C and E do not.
For all loss categories, Nationstar alleges in conclusory fashion that breaches of certain provisions of the Agreement by MSR caused it losses that fall into these categories. Nationstar's reliance on The Revised Freddie Mac Letter only proves the point. It merely alleges MSR would be required to indemnify Nationstar “ to the extent that ” MSR engaged in certain conduct that constitutes breach of the listed sections of the Agreement. In other words, Nationstar merely posits the possibility that MSR breached. Those allegations, on their own, fail to plead sufficient facts that would allow the counterclaim to survive a motion to dismiss. See Uncas International LLC v. Crimzon Rose, Inc., No. 16-CV-9610, 2017 WL 2839668, at *8 (S.D.N.Y. June 26, 2017) (“conclusory pleading is insufficient to show that [Plaintiff] fulfilled the prerequisite for indemnification for those claims”); Amusement Industry, Inc. v. Stern, 693 F.Supp.2d 319, 325 (S.D.N.Y. 2010) (dismissing indemnity claim because plaintiff “provide[d] no allegations that explain why he is entitled to indemnity” beyond conclusory statements) (emphasis in original); cf. Ace Securities Corp. Home Equity Loan Trust, Series 2007-HE3 ex rel. HSBC Bank USA, National Association v. DB Structured Products, Inc., 5 F.Supp.3d 543, 559 (S.D.N.Y. 2014) (denying motion to dismiss because the “Complaints do not simply assert, without more, that a certain number of loans were in breach of the representations and warranties. Instead, they say which representations and warranties were breached, and how ”) (emphasis added).
The Schedules of loan-specific losses attached to the Freddie Mac Letters also fail to provide the necessary facts. The attached Schedules list a loan number, amount, and short description of each claimed loss by category, but they provide no information on when each loss allegedly occurred nor identify conduct by MSR that plausibly gave rise to the loss. (See Revised Freddie Mac Letter Schedules A-E.) Nationstar's reliance on the specificity of some of the entries is thus misplaced. While, for example, entries in Category A (unpaid advances) get so specific as to identify that a particular loss was associated with the cost of a locksmith, there are no facts that allow the Court to infer that that payment was made during the time period that would entitle Nationstar to have it repaid by MSR. Similarly, Nationstar provides no facts that would allow the Court to infer that Category B and C losses arising out of mortgage curtailments and Freddie Mac compensatory fees, respectively, were caused by a defect in an underlying loan or lack of completeness of the files provided for the loan (which would evidence breach of §§ 5.01 or 5.05 of the Agreement) rather than some error or action by Nationstar.
Category E losses fare no better. First, the mere presence of a repurchase demand, without more facts, does not evidence breach. Section 5.06 of the Agreement represents that there are no pending claims or demands against MSR for repurchase of any of the loans as of the date of the Agreement, except those loans listed in Exhibit J to the Agreement. A cursory glance at Exhibit J to the Agreement compared to Schedule E to the Revised Freddie Mac Letter reveals that at least some of the loans listed in Exhibit J as having pending repurchase demands at the time of the Agreement are included in the list of loans with losses related to repurchase demands for which Nationstar seeks indemnity. Any loss arising out of a pending repurchase demand that was disclosed by MSR in Exhibit J would not evidence a breach of § 5.06 of the Agreement. And while Nationstar has established that Freddie Mac demanded repurchase of all of the loans listed in Schedule E, there are no facts that establish those repurchase demands arose out of defects in the underlying loans or the information Nationstar received (Agreement §§ 5.01, 5.04, 5.05); failure of MSR to pay advances (§ 5.03); damage to the properties securing the loans (§ 5.09); or prior failures of MSR or its subservicer to comply with their servicing obligations (§ 5.10). As pled, it is just as likely that Nationstar's own conduct in servicing the loans caused Freddie Mac to demand repurchase.
Exhibit J to the Agreement is attached as part of Exhibit A to MSR's complaint. (Dkt. 1-1 at ECF 118-21.)
The instant case is not the first time Nationstar faced dismissal of indemnification claims arising out of a sale of servicing rights from another institution. In Nationstar Mortgage, LLC v. Ocwen Loan Servicing, LLC filed in New York State Supreme Court, Nationstar's complaint alleged that Nationstar provided notice to Ocwen of losses entitling Nationstar to indemnification, and attached notice remarkably similar to the Freddie Mac Letters here. See Index No. 651366/2019, Doc. 4, at 18-31, Ex. D (Sup. Ct. NY 2019).Much like the present Amended Counterclaim, Nationstar's Ocwen “complaint provided bare and conclusory allegations … that did not identify the time period, amount or source of the alleged losses.” Ocwen Loan Servicing, 194 A.D.3d at 492, 149 N.Y.S.3d at 18. The trial court dismissed the complaint as insufficient, and the Appellate Division affirmed because the complaint and exhibits “did not allege facts giving adequate notice of the nature of the claims or when they occurred.” Id. While the court grounded its decision in N.Y. C.P.L.R. 3013, which requires “statements in a pleading [to] be sufficiently particular to give the court and parties notice of the transactions, occurrences, or series of transactions or occurrences, intended to be proved,” the court's reasoning highlights similar deficiencies that warrant dismissal of much of Nationstar's claim in this case. Notably, although MSR discussed Nationstar v. Ocwen in its opening brief, Nationstar's opposition made no attempt to distinguish it from the present case.
The Court takes judicial notice of Nationstar's state court filings as permitted on a motion to dismiss. See Simmons v. Trans Express Inc., 16 F.4th 357, 360 (2d Cir. 2021) (“A court may take judicial notice of a document filed in another court ... to establish the fact of such litigation and related filings”) (quoting Liberty Mutual Insurance Co. v. Rotches Pork Packers, Inc., 969 F.2d 1384, 1388 (2d Cir. 1992)).
4. Loss Category D Is Sufficiently Pled
In contrast to loss Categories A, B, C, and E, Nationstar's claim for indemnification of losses in Category D (existing open claims) is sufficiently pled. Loss Category D includes loans for which Nationstar previously provided demand for indemnification and which include claimed losses for alleged breach of representations, such as those relating to tax liabilities, unrecorded liens, and chain of assignment deficiencies.
The Amended Counterclaim alleges that Nationstar “has identified - and previously provided written notice to MSR of - at least 265 instances of indemnifiable losses” as well as an unidentified number of “unclaimable advances” and “repurchase demands.” (AC ¶¶ 151-53.) Those allegations alone do not suffice to state a claim. Even if true, Nationstar's allegations that it had identified and previously provided written notice to MSR of certain losses do not supply the needed facts as to timing and circumstances that would demonstrate a right to indemnification. As explained above, however, additional allegations save Category D loss claims from dismissal.
While the Freddie Mac Letter language and Schedule D suffer from the same factual deficiencies that plague the other categories of losses, Nationstar has pled additional facts that plausibly entitle it to indemnity. For instance, Nationstar alleges that losses due to unrecorded liens and chain of assignment mortgage deficiencies, “ must necessarily result from MSR's breach of a representation or warranty, MSR's non-fulfilment of one of its covenants or other obligations, Prior Servicing Errors, or Prior Origination Errors” because it was the responsibility of the originator or prior servicer to record Freddie Mac's lien and ensure a proper chain of Assignment of Mortgage. (AC ¶ 144 (emphasis added).) That assertion pushes the breach of contract claim as to Category D losses due to unrecorded liens and chain of assignment deficiencies “across the line from conceivable to plausible” necessary to survive a motion to dismiss. Iqbal, 556 U.S. at 683, 120 S.Ct. at 1952 (quoting Twombly, 550 U.S. at 570, 127 S.Ct. at 1974). Similarly, losses attributed to loans that were “Liquidated Before Acquisition” as described in Schedule D also must necessarily be attributed to conduct predating Nationstar's servicing of the loans.
MSR argues that Nationstar must articulate specific circumstances giving rise to the counterclaim on a loan-by-loan or loss-by-loss basis. (MSR Reply at 10.) The Court stops short of holding that this granular level of detail is necessary at the pleading stage where sufficient other facts are pled to plausibly allege loan defects that actually or necessarily occurred prior to the sale of loans to Nationstar.
The Amended Counterclaim also includes additional allegations concerning losses in Category D arising from tax liabilities and penalties. Section 7.04 of the Agreement requires MSR to pay certain tax liabilities “incurred due to incorrect or missing tax records processed or provided by [MSR or it's tax service agent] to [Nationstar]” or with due dates prior to or within thirty days of the Servicing Transfer Date, but only if the tax bill was issued at least thirty days before the Servicing Transfer Date. Standing alone, Nationstar's “to the extent that” pleading would be insufficient to demonstrate that the losses from tax liabilities arose within the time limits described in § 7.04 or were caused by incorrect or missing records. However, the Amended Counterclaim goes beyond that to allege that MSR previously acknowledged specific loans in the tax penalties category that MSR understood to have occurred prior to the transfer of loans to Nationstar.
Specifically, in 2018, MSR asserted a counterclaim against Ocwen, the servicer that preceded Nationstar, based on indemnification claims made by Nationstar against MSR that are at issue here. In the counterclaim, MSR expressly identified as Ocwen's responsibility two examples of loans for which Nationstar sought indemnity based on breach of the tax liability provision. (See AC ¶ 147.) MSR cannot on the one hand, for purposes of seeking indemnification from Ocwen, identify specific loans for which MSR attributed liability as arising prior to sale of the loans to Nationstar, and, on the other hand, argue here that it does not have adequate notice that the same loan breaches arose prior to the sale to Nationstar. Although there are other loans for which Nationstar seeks indemnification based on tax liability breaches but for which Nationstar has not set forth facts to establish that MSR, rather than Nationstar, is liable, Nationstar has sustained its burden on this motion to establish that MSR necessarily bears responsibility for at least some of the loans in the category. Taken together with other types of loss Category D breaches (including unrecorded liens and chain of assignment as discussed above), Nationstar has plausibly stated a claim against MSR with respect to loss Category D as a whole.
The allegation in MSR's counterclaim asserted: “By way of example only, Nationstar demanded indemnification from MSR Trust for a make whole payment in excess of $210,000 arising from Ocwen's failure to redeem a property from a tax sale. Likewise, Nationstar demanded approximately $390,000 arising from Ocwen's failure to redeem another property from a tax sale.” Ocwen Loan Servicing v. MSR Trust, No. 18-CV-3923 (S.D.N.Y.), Dkt. 8 (filed July 2, 2018).
In sum, the Amended Counterclaim, together with the Revised Freddie Mac Letter and Schedules, fails to plead sufficient facts to establish Nationstar's right to indemnification for claimed losses in Categories A-C and E. MSR's motion should be granted dismissing the counterclaim for those losses. See Amusement Industry, 693 F.Supp.2d at 325 (dismissing claim for indemnity where plaintiff provided no facts to support entitlement to indemnification); U.S. Gas & Electric, Inc. v. Big Apple Energy, LLC, 705 F.Supp.2d 216, 219-20 (E.D.N.Y. 2010) (denying reconsideration of dismissal of indemnification counterclaim but granting leave to amend because the proposed amended counterclaim “provides factual allegations that, if true, could plausibly support his claim for indemnification”) (emphasis omitted).
At the same time, Nationstar has pled sufficient facts to support its breach of contract claim with respect to Category D losses. Accordingly, MSR's motion should be denied as to the counterclaim for those losses. See Torchlight Loan Services, LLC v. Column Financial, Inc., No. 11-CV-7426, 2012 WL 3065929, at *5-9 (S.D.N.Y. July 25, 2012) (granting in part and denying in part motion to dismiss a breach of contract claim where some breaches were adequately pled and some were not); Prime Mover Capital Partners, LP. v. Elixir Gaming Technologies, Inc., 793 F.Supp.2d 651, 663-66 (S.D.N.Y. 2011) (same).
B. The Declaratory Judgment Counterclaim Should Be Dismissed
MSR moves to dismiss Nationstar's counterclaim for declaratory judgment for three principal reasons: (1) the relief Nationstar seeks is unclear; (2) the declaration will not serve a useful purpose because it is duplicative of its claim for breach of contract; and (3) it will not provide relief from uncertainty because it is only directed to past conduct. The Court agrees that the declaratory judgment counterclaim should be dismissed as duplicative and for being directed only to past conduct.
1. Declaratory Judgment Standard
The Declaratory Judgment Act (“DJA”) provides in relevant part that, “[i]n a case of actual controversy within its jurisdiction ... any court of the United States … may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C. § 2201(a); MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 126, 127 S.Ct. 764, 770 (2007)). The Act “confers a discretion on the courts rather than an absolute right upon the litigant.” Wilton v. Seven Falls Co., 515 U.S. 277, 287, 115 S.Ct. 2137, 2143 (1995); see also Medimmune, 549 U.S. at 136, 127 S.Ct. at 776 (citing Wilton). In determining whether a declaratory judgment action is warranted, a court considers the totality of circumstances, including whether declaratory judgment (1) will “serve a useful purpose in clarifying and settling the legal relations in issue;” or (2) “afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.” Continental Casualty Co. v. Coastal Savings Bank, 977 F.2d 734, 737 (2d Cir. 1992); see also Duane Read, Inc. v. Saint Paul Fire & Marine, Inc., 411 F.3d 384, 389 (2d Cir. 2005) (reciting same considerations).
2. Nationstar's Declaratory Judgment Claim Is Duplicative Of Its Breach Of Contract Claim
MSR argues that the declaration Nationstar seeks will not serve a useful purpose because it is duplicative of its breach of contract counterclaim. (MSR Mem. at 24; MSR Reply at 8-10.) Nationstar responds that its declaratory judgment counterclaim is not duplicative because it seeks a “seeks a judicial declaration that MSR is obligated to indemnify Nationstar pursuant to § 11.01 of the Agreement” while its breach of contract counterclaim “seeks a specific damages award.” (Nationstar Mem. at 19.) The Court agrees with MSR.
Courts frequently find that a declaratory judgment will not serve a useful purpose when the claim is duplicative of another claim in the same action. See, e.g., City of Perry, Iowa v. Procter & Gamble Co., 188 F.Supp.3d 276, 286 (S.D.N.Y. 2016) (“Courts generally reject a [declaratory judgment] claim when other claims in the suit will resolve the same issues”); Amusement Industry693 F.Supp.2d at 311 (“the fact that a lawsuit has been filed that will necessarily settle the issues for which the declaratory judgment is sought suggests that the declaratory judgment will serve ‘no useful purpose'”); Sofi Classic S.A. de C.V. v. Hurowitz, 444 F.Supp.2d 231, 249 (S.D.N.Y. 2006) (dismissing declaratory judgment claim as duplicative where it sought “resolution of legal issues that will, of necessity, be resolved in the course of the litigation of the other causes of action”).
Here, Nationstar seeks a declaration that MSR is required to indemnify it for its losses under § 11.01 of the Agreement. (AC ¶ 36.) Nationstar also seeks damages for breach of contract to remedy MSR's alleged failure to indemnify it under the same provision. (AC ¶ 35.) But the issue of whether MSR is required to indemnify Nationstar for its claimed losses necessarily will be decided by the Court in ruling on the breach claim; Nationstar can only be awarded damages if the Court first determines that MSR was required to indemnify Nationstar for its losses such that its failure to do so breached the Agreement. Even though the relief sought is nominally different, adjudication of both counterclaims requires the Court to rule on identical legal issues and identical facts.
Because the declaratory judgment counterclaim seeks “resolution of legal issues that will, of necessity, be resolved in the course of the litigation of the other causes of action,” it does not serve a useful purpose and should be dismissed. Hurowitz, 444 F.Supp.2d at 249; see also Personal Watercraft Product SARL v. Robinson, No. 16-CV-9771, 2017 WL 4329790, at *11 (S.D.N.Y. Sept. 1, 2017) (granting motion to dismiss declaratory judgment action where “such a declaration [was] a necessary antecedent to a finding of liability under the breach-of-contract claim, and the Plaintiff … made no particularized argument as to why this would not be the case”); Mariah Re Ltd. v. American Family Mutual Insurance Co., 52 F.Supp.3d 601, 623 (S.D.N.Y. 2014), aff'd sub nom., 607 Fed.Appx. 123 (2d Cir. 2015) (“declaratory relief in this case would be wholly superfluous, as the resolution of [the plaintiff's] other claims would settle the issues for which declaratory judgment is sought”) (cleaned up)); Aeolus Down, Inc. v. Credit Suisse International, No. 10-CV-8293, 2011 WL 5570062, at *5 (S.D.N.Y. Nov. 16, 2011) (“A cause of action for declaratory judgment is unnecessary and inappropriate when the plaintiff has an alternative remedy in another form of action, such as breach of contract”) (internal quotation marks and citation omitted); Intellectual Capital Partner v. Institutional Credit Partners LLC, No. 08-CV-10580, 2009 WL 1974392, at *6 (S.D.N.Y. July 8, 2009) (“declaratory relief would serve no useful purpose as the legal issues will be resolved by litigation of the breach of contract claim”).
3. Nationstar's Declaratory Judgement Claim Will Not Provide Relief From Uncertainty Beyond That Provided By Resolution Of The Breach Of Contract Claim
Nationstar alleges that declaratory judgment would “finalize the controversy by clarifying the legal obligations of each party” as to the “uncertainty” of “whether MSR must indemnify Nationstar for Losses as provided for in the Agreement.” (Nationstar Mem. at 20.) MSR contends that the only uncertainty is “whether MSR Trust wrongfully rejected its claims for indemnification,” which only concerns the parties' past conduct (MSR Mem. at 22), and that, in any case, Nationstar has failed to plead loan-by-loan information to allow the Court to determine whether indemnification is owed. (MSR Reply at 10 n.1). While the Court does not hold that loan-by-loan information necessarily needs to be pled at this stage, it agrees that the declaration sought by Nationstar would not provide relief from uncertainty beyond that provided by the breach of contract claim, and so should be dismissed.
For largely the same reasons the declaratory judgment will not serve a useful purpose, it is also not necessary to relieve uncertainty: any uncertainty regarding the parties' rights and obligations to each other under the Agreement will by necessity be resolved through adjudication of the breach of contract counterclaim and claims in the underlying action. See Optanix, Inc. v. Alorica Inc., No. 20-CV-09660, 2021 WL 2810060, at *4 (S.D.N.Y. July 6, 2021) (dismissing declaratory judgment claim because it “would not clarify any uncertainty in the parties' legal relations that would otherwise remain unresolved as part of the breach of contract claim”); Fleisher v. Phoenix Life Insurance Co., 858 F.Supp.2d 290, 303 (S.D.N.Y. 2012) (dismissing declaratory judgment claim that was duplicative of breach of contract claim because “any uncertainty regarding the legality of such actions [taken by defendant] will of necessity be relieved without the need for a declaratory judgment”); Intellectual Capital Partner, 2009 WL 1974392, at *6 (“Any ‘cloud of uncertainty' regarding the scope and enforceability of the provisions will be dispelled in litigation of the breach of contract claim, which also provides for damages”).
Nationstar's declaratory judgment claim also will not provide relief from uncertainty because it is directed primarily to the past, not the future. Declaratory judgments may provide relief from uncertainty where they are directed towards prospective relief, but declaratory judgments resolving disputes over past acts are inappropriate. Lojan v. Crumbsie, No. 12-CV-0320, 2013 WL 411356, at *5 (S.D.N.Y. Feb. 1, 2013) (“declaratory judgment is inappropriate when the alleged wrong has already been committed”); National Union Fire Insurance Co. of Pittsburgh, PA v. International Wire Group, Inc., No. 02-CV-10338, 2003 WL 21277114, at *5 (S.D.N.Y. June 2, 2003) (“Anticipatory judgments of non-liability are particularly appropriate where there are ‘claims asserting unaccrued or undefined rights or obligations arising under contractual relations such as insurance and intellectual property,'” but “[t]here is no basis for declaratory relief where only past acts are involved”).
Nationstar only sets forth allegations of past conduct in its counterclaims; mainly, that Nationstar suffered losses caused by MSR's breaches of representations and warranties and covenants, and that MSR therefore must indemnify Nationstar for these already-suffered losses. (See, e.g., AC ¶ 164 “In accordance with Section 11.01, Nationstar seeks indemnification for Losses incurred that result from or arise out of material breaches of representations and warranties by MSR, non-fulfillment of covenants or other obligations of MSR, Prior Servicing Errors, and Prior Origination Errors.”) There are no non-conclusory allegations that indicate any grounds for forward-looking relief, which is reason enough to dismiss the counterclaim.
While Nationstar alleges that “it is possible that Nationstar will continue to incur indemnifiable losses to which it may be entitled to recover during the pendency of this litigation because the Agreement does not limit the time period in which Nationstar may seek and be entitled to indemnification by MSR pursuant to Section 11.01” (AC ¶ 154), the Amended Counterclaim contains no more concrete allegations directed to any future conduct. Moreover, to the extent Nationstar seeks declaratory relief as to potential future losses for which it will seek indemnity, but which are not detailed in the Amended Counterclaim or Freddie Mac Letters, such a declaration would be inappropriate because the dispute is not ripe. See National Organization for Marriage, Inc. v. Walsh, 714 F.3d 682 , 687 (2d Cir. 2013) (“To be justiciable, a cause of action must be ripe[.] ... A claim is not ripe if it depends upon contingent future events that may not occur as anticipated, or indeed may not occur at all”) (cleaned up); EFG Bank AG, Cayman Branch v. AXA Equitable Life Insurance Co., 309 F.Supp.3d 89, 99 (S.D.N.Y. 2018) (dismissing declaratory judgment claim for being duplicative of breach of contract claim and because “to the extent that Plaintiffs go beyond the matters at issue in this case and seek ‘specific guidelines' as to other matters, it would be inappropriate for the Court to opine”) (collecting cases).
“In short, to the extent that the Court has authority to grant relief at all, [Nationstar's] contract claims will necessarily settle the issues for which the declaratory judgment is sought, meaning that the [declaratory judgment] claim will serve no useful purpose and will not serve to offer relief from uncertainty.” EFG Bank, 309 F.Supp.3d at 100 (cleaned up). Nationstar's counterclaim for declaratory judgment therefore should be dismissed.
CONCLUSION
For the forgoing reasons, I recommend that MSR's motion to dismiss be GRANTED with respect to breach of contract claims arising from MSR's alleged failure to indemnify all losses in Categories A-C and E. The motion should be denied with respect to Nationstar's claim for breach of contract claims arising from MSR's alleged failure to indemnify for losses in Category D. I further recommend that the motion be GRANTED with respect to Nationstar's declaratory judgment counterclaim. All dismissals should be without prejudice. To the extent not discussed above, the Court has considered the parties' arguments and finds them to be without merit.
PROCEDURES FOR FILING OBJECTIONS AND PRESERVING APPEAL
Pursuant to 28 U.S.C. § 636(b)(1) and Rules 72, 6(a), and 6(d) of the Federal Rules of Civil Procedure, the parties shall have fourteen (14) days to file written objections to this Report and Recommendation. Such objections shall be filed with the Clerk of the Court, with extra copies delivered to the Chambers of the Honorable George B. Daniels, United States Courthouse, 500 Pearl Street, New York, New York 10007, and to the Chambers of the undersigned, United States Courthouse, 500 Pearl Street, New York, New York 10007. Failure to file timely objections will result in a waiver of objections and will preclude appellate review.