750 Seventh Avenue, 26th Floor
New York, New York 10019
Tel: (646) 837-5151
Fax: (646) 837-5150
www.hsgllp.com
August 1, 2016
BY HAND DELIVERY
Hon. John P. Asiello, Esq.
Chief Clerk and Legal Counsel to the Court
Clerk’s Office, New York State Court of Appeals
20 Eagle Street
Albany, New York 12207
Re: The Bank of New York Mellon v. WMC Mortgage LLC, et al.,
APL-2016-00114
Dear Mr. Asiello:
We write on behalf of respondent BNYM in opposition to the Rule 500.11
letter brief submitted by appellants JPMMAC and JPMC Bank (together, “JPM”).1
The courts below unanimously interpreted unambiguous contractual language to
mean what it says, rejecting JPM’s effort to add words to the parties’ agreement
and eviscerate BNYM’s bargained-for warranty protection. For the reasons below
and in BNYM’s Appellate Division brief (see Rule 500.11(f)), this Court should
continue Rule 500.11 treatment for this appeal and affirm.
1 In this letter brief, “BNYM” refers to respondent The Bank of New York Mellon, solely as
Securities Administrator for J.P. Morgan Mortgage Acquisition Trust 2006-WMC4 (the “Trust”);
“JPMMAC” refers to appellant J.P. Morgan Mortgage Acquisition Corp.; and “JPMC Bank”
refers to appellant JPMorgan Chase Bank, N.A.
2
INTRODUCTION
This case involves an RMBS securitization called J.P. Morgan Mortgage
Acquisition Trust 2006-WMC4 sponsored by JPMMAC. JPM’s appeal here
renews its request for the courts to rewrite the clear language of one of the core
representations and warranties it made in its capacity as sponsor. Both lower
courts rejected that request, and this Court should too.
In the so-called “MLS Representation,” JPMMAC represented and
warranted the accuracy of the Mortgage Loan Schedule and “tape” that listed all
the loans included in the securitization and set forth a variety of data concerning
the characteristics and quality of those loans. Specifically, JPMMAC
“represent[ed] and warrant[ed]” that the information contained in the Mortgage
Loan Schedule and tape was “true, correct and complete” “[w]ith respect to the
period from [October 30, 2006] to and including [December 20, 2006]” (the
“Warranty Period”). Giving effect to that clear language, the trial court and a
unanimous panel of the First Department found that BNYM had adequately
pleaded a breach of the MLS Representation by alleging that certain information
reflected in the Mortgage Loan Schedule—indeed, a huge portion of it, affecting
thousands of loans worth hundreds of millions of dollars—was not “true, correct
and complete” during the Warranty Period.
3
Nevertheless, JPM insists that the MLS Representation does not mean what
it says, but something different. According to JPM, JPMMAC is not liable for
breach of the MLS Representation if the information in the Mortgage Loan
Schedule and tape was false at any point during the Warranty Period; instead,
JPMMAC is liable only if the information became false during that period. The
word “becomes” appears nowhere in the MLS Representation, however, and has a
different meaning than “is”—the word the parties actually agreed to use. Put
another way, JPMMAC warranted against information in the Mortgage Loan
Schedule being inaccurate during the Warranty Period, not against the information
first becoming inaccurate in such period. No language in the MLS Representation
states when the defects must arise for JPMMAC to be liable for a misstatement in
the Mortgage Loan Schedule. And nothing in the MLS Representation supports
JPM’s effort to add such a requirement.
New York courts do not graft words onto contracts or add to their meaning.
This is particularly true for contracts in what JPM describes as a “complex,
heavily-lawyered financial transaction.” JPM Ltr. Br. 3. The trial and appellate
courts did not “override[] the warranty’s express temporal limits.” Id. To the
contrary, the First Department stated that “JPMMAC warranted against the
existence of any material misstatement during the warranty period.” 136 A.D.3d 1,
7 (1st Dep’t 2015). In finding that “the relevant inquiry [to determine breach] is
4
whether any information in the loan schedule was incorrect during the [Warranty]
Period” (R. 857), the lower courts simply gave effect to the actual language of the
warranty.
None of the arguments JPM advances can justify transforming the plain
language of the contract. JPM first argues that the lower courts’ reading of the
MLS Representation renders the Warranty Period language meaningless, but
JPM’s argument refutes itself. JPM apparently agrees with BNYM (and the courts
below) that the Warranty Period language limits the time period during which the
court should evaluate the truth of the information in the Mortgage Loan Schedule
and tape to determine whether or not JPMMAC breached the MLS Representation.
Doing so gives meaning to the Warranty Period—without need for JPM’s
additional contention that inaccurate information in the Mortgage Loan Schedule
must have “become” false during the Warranty Period.
In fact, it is JPM’s strained interpretation that would render the MLS
Representation meaningless for the great majority of the Mortgage Loan Schedule
and tape. Almost all of the information on the Schedule was stated to be as of the
date of the loan’s origination and therefore was either true or false at that date and
could not change. Under JPM’s reading, JPMMAC would never be liable for the
falsity of any such information, even if it “was” false during the Warranty Period.
5
JPM also argues that if the Warranty Period language is applied according to
its plain meaning, then JPM will have the “same” liability as WMC—the originator
of the loans in the Trust—for false information reflected on the Mortgage Loan
Schedule and tape. JPM Ltr. Br. 5, 13, 18. As the First Department recognized,
that assertion is not true: WMC makes a number of representations that do not
relate to information in the mortgage loan schedule (136 A.D.3d at 8), so WMC’s
liability and JPMMAC’s are not coextensive. And the lower courts’ interpretation
of the Warranty Period language does limit JPM’s liability under the MLS
Representation because JPMMAC is not liable for information on the Mortgage
Loan Schedule that was false prior to the onset on the Warranty Period (for which
WMC would be liable), but not false during the Warranty Period. Even if WMC’s
and JPMMAC’s liabilities did overlap, however, that would not permit the Court to
look beyond the contract’s plain, unambiguous language.
JPM’s further attempt to find error in the trial court’s citation of language
from a “bring-down” representation in another transaction is misplaced. Putting
aside that the citation was precipitated by JPM’s own arguments about “gap” or
“bring-down” warranties (terms not used in the PSA), the First Department did not
mention the challenged document and plainly did not rely on it.
Finally, JPM’s argument that the lower courts should not have decided the
meaning of a “disputed” contractual provision in the context of a motion to dismiss
6
(JPM Ltr. Br. 27-28) cannot be taken seriously. JPM moved below on the premise
that the MLS Representation was unambiguous in order to justify dismissal of
BNYM’s claims as a matter of law. It can hardly complain that the courts
concluded that the actual meaning of this unambiguous provision was not the one
JPM advanced.
Because JPM offers no reasonable interpretation of the MLS Representation
and identifies no error in the decisions below, this Court should affirm.
COUNTERSTATEMENT OF QUESTION ONAPPEAL
Whether the courts below correctly interpreted unambiguous contractual
language in accordance with its plain meaning to deny JPM’s motion to dismiss,
and rejected JPM’s unreasonable alternative interpretation, which would add words
to the contract and fundamentally transform its meaning.
BACKGROUND
A. RMBS securitization and the Trust.
The Trust is an approximately $1.9 billion residential mortgage backed
securitization that JPMMAC arranged and sponsored. (R. 33 ¶¶ 30.)
In RMBS securitizations, the sponsor of the transaction typically acquires
loans to be securitized from the loan originator. The sponsor then determines
which loans to include in the loan pool to be securitized, arranges for the creation
of the securitization trust and transfers, normally through an affiliate, the loan pool
to the trust. The purchase price for the loans is funded with the proceeds of
7
certificates sold to investors, who are then entitled to share in the cash flows
generated by the loans. The transfer of the loans to the trust and the rights of the
parties to the transaction are typically governed by a pooling and servicing
agreement. (See R. 31-33 ¶¶ 22-29.)
For the WMC4 trust, the loans that are part of the Trust’s securitization pool
were originated by WMC. JPMMAC was the sponsor of the transaction and the
“Seller” of the loans in the Trust, and JPMC Bank acted as the “Servicer.” (R. 27 ¶
3; 34 ¶ 33.) JPMMAC purchased the loans from WMC pursuant to the Mortgage
Loan Sale and Interim Servicing Agreement dated July 1, 2005 (the “MLSA”), and
resold a substantial portion of them to the Depositor, a JPMMAC affiliate, which
then transferred the loans into the Trust pursuant to the Pooling and Servicing
Agreement (“PSA”). (R. 33 ¶¶ 30-31; 34 ¶¶ 32-33; 62.) BNYM, as the Trust’s
Securities Administrator, is empowered to enforce the Trust’s rights under the PSA
arising from breaches of representations and warranties. (R. 29-30 ¶ 12.)
As is typical in RMBS securitizations, the complexity of the underwriting
and securitization process, together with the size and confidential nature of the loan
files, meant that it would be difficult—if not impossible—for potential investors in
the Trust to evaluate or control the underwriting process and thereby assess the
mortgage loans’ characteristics. (R. 33 ¶ 28.) The sponsor of the transaction
typically performs due diligence on the loans it acquires from the originator. As
8
BNYM alleges, JPMMAC as the sponsor is one of the parties “best equipped” to
verify the accuracy of WMC’s representations as to the quality and characteristics
of the loans to be securitized. (R. 50 ¶ 78.)2
To provide assurance that the mortgage loans had been adequately
underwritten and to relieve others from the need to evaluate the individual loan
files, the originator or sponsor, or both, provide representations and warranties
concerning the nature, characteristics, history and quality of the mortgage loans
and loan files deposited in the Trust. (R. 33 ¶¶ 28-29.) Such representations
warrant facts that affect each loan’s value, such as the borrower’s income and debt
level at the time of origination, the property’s value at the time of origination, the
loan file’s documentation, the quality of the underwriting process, and whether the
property would be occupied by the borrower or purchased as an investment. (R.
34-35 ¶¶ 34-35; 46-47 ¶¶ 72-73.) In this case, WMC made some 60 loan-level
representations and warranties, and JPMMAC also made representations and
warranties. (R. 84-98, MLSA § 7.01.)
2 In a $13 billion settlement between JPMMAC’s corporate parent, JPMorgan Chase & Co.
(“JPMC”), and the United States Department of Justice, arising out of JPMC’s misconduct in
connection with RMBS securitization trusts, including the WMC4 Trust, JPMC acknowledged
that its employees had been informed by “due diligence vendors that a number of loans in at least
some of the loan pools that it had purchased and subsequently securitized did not comply with
originators’ underwriting guidelines.” (R. 807-808.)
9
B. JPMMAC makes the MLS Representation.
JPMMAC’s representations and warranties are set forth in PSA § 2.06. (R.
225.) In § 2.06(a), JPMMAC adopted a number of the representations that WMC
had made to JPMMAC in the MLSA. (Those representations and warranties are
set forth in Schedule 4 to the PSA (R. 402), which mirrors § 7.01 of the MLSA (R.
84).) Each of the representations and warranties JPMMAC made in § 2.06(a) was
made “[w]ith respect to” a certain period of time, depending on the effective date
of WMC’s underlying representation and warranty.3 For WMC’s representations
and warranties made effective through the “Whole Loan Sale Date”—October 30,
2006—JPMMAC made its representations and warranties effective “[w]ith respect
to the period from such Whole Loan Sale Date to and including the Closing Date.”
(R. 225, PSA § 2.06(a)(ii), (iii)) (i.e., the Warranty Period).
The MLS Representation at issue falls in this category. In particular, PSA
§ 2.06(a)(iii) provides that:
With respect to the period from such Whole Loan Sale Date
[October 30, 2006] to and including the Closing Date
[December 20, 2006], [JPMMAC] hereby makes the
representations and warranties contained in paragraph (a), (bb)
and (vv) of Schedule 4 attached hereto . . .
Paragraph (a) of Schedule 4, in turn, provides that:
3 In addition, JPMMAC made independent representations and warranties in § 2.06(b) that did
not incorporate representations and warranties previously made by WMC. (R. 225.)
10
The information set forth in the Mortgage Loan Schedule and
the tape delivered by the Seller to the Purchaser is true, correct
and complete in all material respects.
(See R. 225, PSA § 2.06(a)(ii), (iii); R. 402, Schedule 4(a).)
The Mortgage Loan Schedule, as defined in the MLSA, was a schedule that
described the terms of each mortgage loan involved in the securitization and
relevant information about the borrower(s) and the mortgaged property. (R. 74-
77.) For example, the Mortgage Loan Schedule set forth:
the Mortgagor’s name, social security number, and monthly gross income
at origination;
the loan-to-value ratios (i.e., the ratio of the loan amount to the appraised
value of the mortgaged property) and debt-to-income ratios (i.e., the ratio
of the borrower’s debt service obligations to his/her income) at
origination;
the occupancy status of the Mortgaged Property (i.e., whether the
borrower occupied the mortgaged property); and
the mortgage interest rate and next monthly payment due as of a fixed
“Cut Off Date”.
(Id.) The overwhelming majority of the information on the Mortgage Loan
Schedule recorded data as of a specifically fixed date—e.g., the loan’s
origination—that could not change over time. (Id.) But the Mortgage Loan
Schedule also included some categories of information that could change, such as
11
the payment status of the loan or whether it was in bankruptcy or foreclosure. (See
R. 75, (23).)4
Under the plain terms of the MLS Representation, JPMMAC warranted that
the information on the Mortgage Loan Schedule and tape was “true, correct and
complete” with respect to the period from October 30 through December 20, 2006
(i.e., the Warranty Period). Moreover, JPMMAC agreed that “[i]f the substance of
the representations and warranties referred to in clause[] (a)(iii),” including the
MLS Representation, “are determined to have been breached,” then JPMMAC
would be required to repurchase any loans with respect to which a material breach
had occurred. (R. 225, PSA § 2.06(c); R. 217-21, PSA § 2.03.)
C. BNYM alleges a breach of the MLS Representation.
JPMMAC’s MLS Representation was false when made with respect to many
of the mortgage loans in the Trust. On September 18 and November 30, 2012,
BNYM sent breach notices to defendants, including JPMMAC, detailing breaches
of representations and warranties for approximately 3,200 loans that materially and
adversely affect the loans’ value. Defendants have refused to cure or repurchase
any of the breaching loans. (R. 43-46, 51 ¶¶ 64-71, 83-84.)
4 WMC delivered the Mortgage Loan Schedule to JPMMAC in connection with the closing of
the MLSA (R. 81, MLSA § 3), and JPMMAC, in turn, delivered a copy of the Mortgage Loan
Schedule to the Trust in connection with the closing of the PSA (R. 214-16, PSA § 2.01).
12
On February 24, 2013, BNYM filed its Complaint alleging eight causes of
action, including causes of action against JPMMAC for breach of the MLS
Representation and failure to repurchase. In the Complaint, BNYM alleges that
JPMMAC made the MLS Representation; that widespread inaccuracies in the
Mortgage Loan Schedule breached the MLS Representation; and that,
consequently, JPMMAC has a repurchase obligation as to the breaching loans. (R.
37-38, 40-42, 46-48, 50-52, 53-54 ¶¶ 44-45, 53-57, 71-74, 80-85, 95-103.)
D. The courts below correctly interpret the MLS Representation and
deny JPM’s motion to dismiss the Complaint.
On April 26, 2013, JPMMAC moved to dismiss, arguing (as it does here)
that its MLS Representation covered only instances where “any issues with the
Mortgage Loans arose” during the Warranty Period and that BNYM had not
alleged any such instances. (R. 489.) In other words, JPMMAC claimed that it
could be liable only to the extent the information in the Mortgage Loan Schedule
and loan tape became inaccurate during the Warranty Period—regardless of
whether that information was inaccurate during that period. (Id.)
On November 21, 2013, the trial court (Kornreich, J.) rejected JPMMAC’s
interpretation of the MLS Representation as contrary to its plain language. The
court reasoned that, “[a]s written, JPMMAC warranted the loan tapes’ truth,” and
that “[i]f JPMMAC did not intend to warrant loan-level defects, it should have
drafted the PSA differently.” (R. 22.) Because BNYM’s Complaint alleged that
13
information contained in the Mortgage Loan Schedule and loan tape was false
during the Warranty Period, the court denied JPM’s motion to dismiss. The court
also found that JPMMAC’s reading would defeat BNYM’s bargained-for warranty
protection, because the information in the Mortgage Loan Schedule and tape was
either true or false as of the date of origination, and therefore could never
“become” false during the Warranty Period. (R. 20-22.)
On February 5, 2014, JPMMAC moved for reargument of the trial court’s
November 21, 2013 order, arguing that because certain information reflected in the
Mortgage Loan Schedule was not fixed as of origination, the court had erred by
noting that “the accuracy of the loan tape cannot change.” (R. 737, 741, 745.) In
an order JPM does not mention in its letter brief, the court denied reargument,
explaining that, while some of the information on the Mortgage Loan Schedule
could change over time, “the majority of information in the loan schedule was
fixed at origination.” (R. 856-857.) Thus, even if some of the information was
capable of becoming false during the Warranty Period, “it does not follow that
[JPMMAC] has no liability for the unalterable items.” (Id.) Rather, to determine
if JPMMAC breached the MLS Representation, “the relevant inquiry is whether
any information in the loan schedule was incorrect during the [Warranty] Period.
Whether the truth of some of the information could change over time is irrelevant.”
(Id.)
14
On December 1, 2015, the First Department unanimously affirmed, finding
that BNYM’s “interpretation of the language of the representations and warranty at
issue is the only reasonable interpretation.” 136 A.D.3d 1, 3 (1st Dep’t 2015). The
court rejected JPM’s argument that JPMMAC “can be held liable only to the extent
that the Mortgage Loan Schedule and the loan tape became inaccurate during” the
Warranty Period, because “[t]here is simply no language in [the MLS
Representation] addressing when the defects in the loans must arise for JPMMAC
to be held liable.” Id. at 6. Rather, if false information “was on the Mortgage
Loan Schedule and loan tape before October 30, 2006, it constitutes a breach of
JPMMAC’s warranties as long as it remained on the Mortgage Loan Schedule or
loan tape during the [W]arranty [P]eriod.” Id. at 6-7.
The First Department also specifically refuted the same “surplusage”
argument that is the centerpiece of JPM’s appeal to this Court:
Section 2.06(a)(iii) as written means that JPMMAC will not
be liable for loan misrepresentations in pre-warranty-period
documents, but will be liable if any misrepresentations still
exist on the Mortgage Loan Schedule or loan tape during the
warranty period. . . . This interpretation is a perfectly
reasonable reading of the operative phrase in section
2.06(a)(iii), and does not leave it without meaning.
Id. at 7. On May 12, 2016, the First Department granted JPM leave to appeal.
15
ARGUMENT
I. THE COURTS BELOW UNANIMOUSLY AND CORRECTLY
INTERPRETED THE PLAIN LANGUAGE OF THE MLS
REPRESENTATION TO MEAN WHAT IT SAYS.
A. Under the plain language of the MLS Representation, JPMMAC
is liable if any of the information in the Mortgage Loan Schedule
or tape was false during the Warranty Period.
“[A] written agreement that is complete, clear and unambiguous on its face
must be enforced according to the plain meaning of its terms.” Greenfield v.
Philles Records, Inc., 98 N.Y.2d 562, 569 (2002). Here, the plain language of the
MLS Representation disposes of this appeal.
The MLS Representation states:
With respect to the period from [October 30, 2006] to and
including [December 20, 2006], [JPMMAC] hereby
[represents and warrants that] . . .
[t]he information set forth in the Mortgage Loan Schedule and
the tape delivered by the Seller to the Purchaser is true, correct
and complete in all material respects.
(See R. 225, PSA § 2.06(a)(ii), (iii); R. 402, Schedule 4(a) (emphasis added).)
There is no mistaking the meaning of these words: If information appeared
on the Mortgage Loan Schedule or tape that was untrue, inaccurate, or incomplete
at any point “[w]ith respect to”—i.e., during—the Warranty Period, then
JPMMAC’s MLS Representation is false, and JPMMAC is liable for its breach.
That is what the MLS Representation says and that is what it means. “The words
and phrases used by the parties must, as in all cases involving contract
16
interpretation, be given their plain meaning.” Ellington v. EMI Music, Inc., 24
N.Y.3d 239, 244 (2014).
The courts below interpreted the MLS Representation consistently with the
plain meaning of its language. Because BNYM alleged that information on the
Mortgage Loan Schedule and tape was not “true, accurate and complete” during
the Warranty Period, including on the December 20, 2006 Closing Date itself, the
courts below correctly denied JPM’s motion to dismiss.
B. JPMMAC’s interpretation adds words to the MLS
Representation and eviscerates its effect.
JPM’s interpretation of the MLS Representation rests on the position that
this warranty does not mean what it says, but something different. According to
JPM, the MLS Representation does not make JPMMAC liable if the information in
the Mortgage Loan Schedule and tape was false at any point during the Warranty
Period, but only if the information first became false during that period.5 See 136
A.D.3d at 6.
The courts below properly rejected JPM’s argument, which adds words and
meanings to the MLS Representation that the parties themselves never agreed to or
expressed. “The court’s role is limited to interpretation and enforcement of the
5 See JPM Ltr. Br. 19, 24 (arguing that Warranty Period language “limits JPMMAC’s liability to
breaches arising during the gap period”); id. 4-5 (arguing that MLS Representation is breached
“in the event that breaches occurred . . . during the gap periods,” and complaint “does not claim
that any alleged defects in the loans arose during the brief gap periods”) (emphases added).
17
terms agreed to by the parties; it does not include the rewriting of their contract and
the imposition of additional terms.” Salvano v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 85 N.Y.2d 173, 182 (1995). The parties could have, but did not, use
the word “become” in the MLS Representation. Rather, JPMMAC “ma[de] the
representation[] and warrant[y] contained in paragraph[] (a)” of Schedule 4, which
warranted that the information in the Mortgage Loan Schedule and tape “is true,
correct and complete.” Because “is” and “becomes” mean different things, JPM’s
interpretation is foreclosed.
Moreover, there is no reasonable way to read the Warranty Period language
of PSA § 2.06(a)(iii)—“[w]ith respect to the period from” October 30 to December
20, 2006—to change the meaning of the word in Schedule 4(a) from “is” to
“becomes.” Indeed, JPM appears to agree that the Warranty Period language has
the same meaning as the word “during” and that the language therefore limits the
time period with respect to which the court should evaluate the truth of the
information in the Mortgage Loan Schedule to determine whether or not JPMMAC
breached the MLS Representation. The difference between the parties concerns
what the court should evaluate “during” the Warranty Period: (1) whether the
information on the Mortgage Loan Schedule and tape “was” false (as the
agreement says, and the courts below concluded); or (2) whether the information
“became” false, as JPM contends. Thus, under JPM’s own interpretation,
18
JPMMAC would be liable only if information on the Mortgage Loan Schedule or
tape became false “during” the Warranty Period. See JPM Ltr. Br. 19, 24 (court
should look to whether information became false “during” the Warranty Period);
id. 4-5 (same) (emphasis added).
Although all agree that the Warranty Period language has the limiting
function ascribed to it by the lower courts, JPM nevertheless argues that the
Warranty Period language also changes the meaning of the word “is” to “becomes”
in Schedule 4(a). JPM thus imposes a double-duty on the Warranty Period
language, and for no apparent purpose other than to limit JPMMAC’s liability
beyond what the parties agreed. JPM’s interpretation is unreasonable and the
courts below rightly rejected it. Reiss v. Fin. Performance Corp., 97 N.Y.2d 195,
199 (2001) (“[C]ourts may not by construction add or excise terms, nor distort the
meaning of those used and thereby make a new contract for the parties under the
guise of interpreting the writing.”).
JPM’s needlessly contorted interpretation would also render the MLS
Representation largely meaningless. The overwhelming majority of Mortgage
Loan Schedule and tape information—including some of the most important
information, such as debt-to-income and loan-to-value ratios—is stated as of the
date of origination, its truth is fixed as of that date, and thus it could never possibly
“become” false thereafter. (R. 74-77.) But by its terms, JPMMAC’s MLS
19
Representation warrants the truth of all “[t]he information set forth in the Mortgage
Loan Schedule and” loan tape. Thus, JPMMAC interprets the MLS Representation
as, for the most part, warranting against an impossibility. As the trial court
observed, “it is hard to see the logic” of such a warranty (R. 22), providing yet
further reason to reject JPM’s interpretation. See Two Guys from Harrison-N.Y.,
Inc. v. S.F.R. Realty Associates, 63 N.Y.2d 396, 403 (1984) (“In construing a
contract, one of a court’s goals is to avoid an interpretation that would leave
contractual clauses meaningless.”).
C. Interpreting the MLS Representation consistently with its plain
terms does not render any language of the PSA superfluous.
JPM also argues that the First Department’s interpretation “nullifies” the
“with respect to” language because it fails to give meaning to the start date of the
Warranty Period. Not so.
Under the First Department’s interpretation, the Warranty Period language
respects both the start date and the end date of the MLS Representation, ensuring
that JPMMAC’s liability is different from WMC’s. As the First Department
explained: “Section 2.06(a)(iii) as written means that JPMMAC will not be liable
for loan misrepresentations in pre-warranty-period documents, but will be liable if
any misrepresentations still exist on the Mortgage Loan Schedule or loan tape
during the warranty period.” 136 A.D.3d at 7. The First Department observed that
this situation could arise if JPMMAC identified false information regarding
20
WMC’s loans and corrected that information prior to the onset of the Warranty
Period. Id. Thus, contrary to JPM’s insistence that the lower court’s application of
the plain language subjects JPMMAC to the “same” liability WMC bears under its
MLS Representation (JPM Ltr. Br. 5, 13, 18), the First Department has already
explained how the Warranty Period language absolves JPMMAC of liability for
information on the Mortgage Loan Schedule that was false prior to the onset on the
Warranty Period (for which WMC would be liable), but not during the Warranty
Period.
JPM now argues that the limitation of liability the First Department
identified is illusory because, JPM claims, JPMMAC could have corrected falsities
in the Mortgage Loan Schedule and loan tape any time before the PSA’s December
20, 2006 Closing Date—even during the Warranty Period itself—and still avoided
liability. JPM Ltr. Br. 19-21.
But JPM’s claim that JPMMAC is only liable for information on the
Mortgage Loan Schedule and tape that is false “as of the Closing Date” is nothing
more than ipse dixit and it’s not true. By representing that the information on the
Mortgage Loan Schedule and loan tape “is true, accurate and complete” during
(i.e., with respect to) the Warranty Period, the language of the MLS Representation
makes clear that it is breached, and JPMMAC is liable, if information on the
Mortgage Loan Schedule was untrue, incorrect or incomplete at any point during
21
the Warranty Period, regardless of whether JPMMAC corrected the falsity prior to
the Closing Date. Although for the vast majority of the information in the
Mortgage Loan Schedule and tape, the inaccuracy was fixed before the beginning
of the Warranty Period, there are categories of information reflected on the
Mortgage Loan Schedule and tape that could have been true or untrue at different
points during the Warranty Period—e.g., the repayment status of the loan. In those
cases, the question with respect to such information should be whether it “was”
true at all times during the Warranty Period. As the First Department found, this
interpretation gives a specific limiting effect to the Warranty Period language by
absolving JPMMAC of liability for information that was false prior to, but not
during, the Warranty Period, for which WMC could be liable, but JPMMAC could
not. 136 A.D.3d at 7.6
Thus, the First Department gave the Warranty Period language effect with
respect to both the alterable and unalterable information reflected in the Mortgage
Loan Schedule. JPM has no valid response to the First Department’s reasoning;
rather, JPM has simply fabricated a second non-existent limitation on its liability,
6 Imposing liability on JPMMAC for information that was false during the Warranty Period
makes commercial sense. As the trial court recognized, the Mortgage Loan Schedule contains
data that is significant to investors in evaluating a potential investment in the certificates to be
issued by a securitization trust (R. 857); and the Mortgage Loan Schedule is the “best—and often
only—source of information about the pool of mortgage loans.” (R. 47 ¶ 73(a).) Thus, a
representation that assures that the data is correct not just at closing but during the period leading
up to closing, when investors may be evaluating a possible investment, serves an important
function.
22
according to which information on the Mortgage Loan Schedule and tape not only
must “become” false during the Warranty Period, but must “remain” false through
the MLS Representation’s effective date, an argument fully articulated for the first
time in its reply on the motion for leave to appeal. See JPM Leave Reply Br. at 2.
At bottom, JPM’s new argument before this Court resolves to the same
invitation to rewrite the MLS Representation. But it is 10 years too late for JPM to
pitch wholesale revisions to the language of the contract and it must live with the
bargain it struck. JPM has identified no surplusage, absurdity or even ambiguity
that would permit the Court to look beyond the plain language of the contract—let
alone rewrite the MLS Representation in the free-wheeling fashion JPM now
suggests. Maurice Goldman & Sons, Inc. v. Hanover Ins. Co., 80 N.Y.2d 986,
987 (1992) (“[T]he courts should not strain to superimpose an unnatural or
unreasonable construction.”).
D. Interpreting the MLS Representation consistently with its plain
terms assigns only one meaning to the Warranty Period language.
JPM also argues that the lower courts’ interpretation of the Warranty Period
language gives it a different meaning within PSA § 2.06(a), depending on which of
WMC’s underlying representations and warranties it modifies. JPM Ltr. Br. 21-22.
This argument rests on a myopic reading of the opinions below, focusing solely on
the trial court’s initial decision. As set forth above, the First Department and the
trial court in its reargument decision assigned a single meaning to the Warranty
23
Period language—i.e., “during”—and a single effect: to delimit the period with
respect to which the truth of the underlying representation and warranty is to be
evaluated. Indeed, this is the same meaning and effect JPM itself assigns to the
Warranty Period language. See pp. 17-18, supra.
In any event, that the Warranty Period language might have a different effect
when applied to different representations and warranties incorporated in PSA §
2.06(a)(iii) is not to say that the Warranty Period language has a “different
meaning” within different parts of the PSA. Rather, any difference in effect would
results from the nature of the underlying representations and warranties
themselves. Prefatory contract language can affect different portions of a contract
differently, and this would simply be one example of that. See Kolbe v. Tibbetts,
22 N.Y.3d 344, 353 (2013) (“Particular words should be considered, not as if
isolated from the context, but in the light of the obligation as a whole.”).
E. Imposing liability on JPMMAC for information in the Mortgage
Loan Schedule and tape that was false during the Warranty
Period is commercially reasonable.
Finding no support for its interpretation of the MLS Representation in the
PSA, JPM resorts to arguing what it thinks is “commercially reasonable.” JPM
Ltr. Br. 22. But there is nothing unreasonable about applying the MLS
Representation as it is written.
24
JPM argues that the “purpose” of JPMMAC’s representations and warranties
was “to create continuous, end-to-end, but not duplicative, warranty coverage.”
JPM Ltr. Br. 9. This purpose is stated nowhere in the PSA, and to the extent the
MLS Representation creates overlapping warranty protection under its plain terms,
JPM’s subjectively perceived “purpose” is irrelevant. “Uncommunicated
subjective intent alone cannot create an issue of fact where otherwise there is
none.” Wells v. Shearson Lehman/Am. Exp., Inc., 72 N.Y.2d 11, 24 (1988).
In any event, JPM’s argument also fails on its own terms because there is
nothing commercially unreasonable about parties providing for overlapping (but
not identical) warranty protection. And there are commercially sound reasons for
having JPMMAC make a broad MLS Representation that warrants the accuracy of
important loan-level data that may also be the subject of WMC’s loan specific
representations. As alleged in the complaint, JPMMAC is “best equipped” to
determine inaccuracies in WMC’s representations. (R. 50 ¶ 78.) A broad MLS
Representation incentivizes the sponsor to undertake that task with care.
Moreover, having the sponsor give an overlapping MLS Representation provides
assurance that even if the originator is unable to meet its obligations in the event of
breach (for example if the originator went bankrupt), there is still a party who can
stand behind the accuracy of representations as to key loan-level data.
25
In short, there is nothing in either the PSA itself, or in the larger context of
the securitization as a whole, that provides any basis for the Court to ignore the
unambiguous terms of the MLS Representation. Under those terms, as correctly
interpreted by the courts below, BNYM has alleged a breach.
II. THE MLS REPRESENTATION IS NOT AMBIGUOUS.
JPM predicated its motion to dismiss on the ground that the MLS
Representation is clear and unambiguous and subject to interpretation by the court
on a motion to dismiss. (R. 473-74, 487-90.) Now that the courts have disagreed
with JPM’s interpretation of the MLS Representation, JPM argues that this Court
should find it ambiguous and asks the Court to remand for discovery as to the
parties’ intent. JPM Ltr. Br. 29-30. JPM’s position is meritless: the provision is
not ambiguous. There is no mistaking the meaning of the MLS Representation as
it is written, as the courts below have unanimously found and as explained above.
And “when the meaning of a contract is plain and clear it is entitled to be enforced
according to its terms and not to be subverted by straining to find an ambiguity
which otherwise might not be thought to exist.” Uribe v. Merchants Bank of New
York, 91 N.Y.2d 336, 341 (1998) (internal quotations and ellipses omitted).
Nor can JPMMAC fabricate ambiguity by advocating its self-serving and
subjective view of its MLS Representation, as “[m]ere assertion by one that
contract language means something to him, where it is otherwise clear,
26
unequivocal and understandable when read in connection with the whole contract,
is not in and of itself enough to raise a triable issue of fact.” Bethlehem Steel Co. v.
Turner Const. Co., 2 N.Y.2d 456, 460 (1957). Rather, as the First Department
found, BNYM’s interpretation is “the only reasonable interpretation.” 136 A.D.3d
at 3. See Brad H. v. City of New York, 17 N.Y.3d 180, 186 (2011) (language
ambiguous only if “it is susceptible to more than one reasonable interpretation”)
(emphasis added).
III. JPM’S MISCELLANEOUS ATTACKS ON THE DECISIONS
BELOW ARE UNAVAILING.
JPM throws out a handful of additional grounds for reversal. None of these
arguments bears scrutiny.
The fact that information on the Mortgage Loan Schedule can change is
irrelevant, as the courts below correctly recognized. JPM argues that this Court
should reverse the courts below because the trial court, in its initial order denying
JPM’s motion to dismiss, made “the incorrect factual assumption that information
on the MLS cannot change.” JPM Ltr. Br. 23. JPMMAC made the identical
argument to the trial court in its motion to reargue (R. 742-744), and the trial court
recognized that, indeed, some of the information on the Mortgage Loan Schedule
could have changed over time. But this does not change the result because “it does
not follow that [JPMMAC] has no liability for the unalterable items.” (R. 856-57.)
Thus, “[w]hether the truth of some of the information could change over time is
27
irrelevant.” (Id.) More importantly, the First Department reached its conclusion
understanding that some information on the Schedule could have changed.
The lower courts interpreted the MLS Representation as a matter of law
and did not rely on extrinsic evidence. JPM next argues that the trial court
improperly relied on extrinsic evidence in interpreting the MLS Representation and
that the First Department “repeated . . . the substance” of this error. JPM Ltr. Br.
25-27. As BNYM explained in its Appellate Division Brief (pp. 28-31), there was
no error. It was JPM that went outside the contract to mischaracterize the MLS
Representation as applying only to falsities first arising during the Warranty Period
and introducing the inapplicable concept of a “gap” or “bring-down” warranty—
neither of which terms appears in the PSA. In any event, the trial court clarified in
its initial order that it “did not view the terms of other PSAs as dispositive” of the
PSA’s meaning here. (R. 22.)
Moreover, the First Department did not so much as mention any other
RMBS contract in its decision. Nor did the First Department “condone” the use of
extrinsic evidence on a motion to dismiss, as JPM insists. To the extent JPM has
in mind the court’s observation that JPMMAC “could well have expressed” its
now-professed intention to limit its liability by using different language (136
A.D.3d at 6), this is a common observation in opinions interpreting contractual
28
language as a matter of law.7 And indeed, JPM makes the same type of argument
in its letter brief. See JPM Ltr. Br. 6-7, 23.
The lower courts did not “deviate from the CPLR” in interpreting the MLS
Representation as a matter of law. JPM next argues that the lower courts erred
when they interpreted the MLS Representation as a matter of law in resolving
JPM’s motion to dismiss. JPM Ltr. Br. 27-28. How strange. In breach of contract
cases, motions to dismiss for failure to state a claim typically involve interpreting
the contract as a matter of law. Indeed, JPM based its motion on the premise that
the PSA was unambiguous and should be interpreted as a matter of law to bar
BNYM’s claims. (R. 473-74, 487-90.) Thus, JPM can hardly be heard to
complain that the courts below agreed that the contract was unambiguous, but
means something other than what JPM argued it means.
JPM nevertheless argues that it should have had an opportunity to put in
evidence in support of its interpretation. JPM’s “procedural” arguments are pure
make-weight, as they depend on JPM’s argument that the contract is ambiguous (it
7 See, e.g., Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 13 N.Y.3d 398, 406 (2009)
(“Of course, the parties could have drafted an agreement that restricted the scope of the sunset
clause in the manner asserted by RSPC. For example, the assignment clause would have had the
meaning RSPC ascribes to it if it read ‘notwithstanding the language limiting the duration of this
agreement,’ the developer will require any subsequent purchaser to abide by the obligations in
this letter for so long as the Special Permits remain in effect.”); Louis Dreyfus Energy Corp. v.
MG Ref. & Mktg., Inc., 2 N.Y.3d 495, 504 (2004) (“Here, MG Capital guaranteed payment of
‘all sums that now are or may hereafter become due and payable . . . under the Contracts.’ If it
meant ‘all sums that may become due and payable prior to the expiration date’ it should have
said so.”); see also Raleigh Associates v. Henry, 302 N.Y. 467, 474 (1951).
29
is not, see pp. 25-26, supra), or that the lower courts improperly relied on extrinsic
evidence (they did not, see pp. 27-28, supra). The meaning of the MLS
Representation was a legal question put squarely into issue on JPM’s motion to
dismiss and the lower courts acted properly in deciding it as a matter of law in
BNYM’s favor.8
CONCLUSION
The courts below correctly interpreted the MLS Representation to mean
what it says and rejected JPM’s invitation to rewrite the contract. This Court
should do the same, continue Rule 500.11 treatment for the appeal, and affirm.
8 JPM’s request for normal course consideration should be rejected. The only legal issue
presented on this appeal is the correct interpretation of the specific language of the MLS
Representation. The resolution of this issue, while important to the parties here, has no statewide
importance. See Rule 500.11(b). JPM’s suggestion that other securitizations utilize a similar
“contractual scheme” is unsupported and, in any event, irrelevant because the contract at issue
here must be interpreted according to its plain terms.
Respectfully submitted,
HOL WELL SHUSTER & GOLDBERG LLP
By: /lft·c!tuf- S, Jtuk-
MichaelS. Shuster
mshuster@hsgllp. com
Dwight A. Healy
dhealy@hsgllp. com
Scott M. Danner
sdanner@hsgllp. com
750 Seventh Avenue, 26th Floor
New York, New York 10019
Telephone: (646) 837-5151
Attorneys for respondent
Encl. (Corporate Disclosure Statement)
cc: Darrell S. Cafasso
Sullivan & Cromwell LLP
Counsel for appellants J.P. Morgan Mortgage Acquisition Corp. and
JP Morgan Chase Bank, NA.
Motty Shulman
Ian M. Dumain
Boies, Schiller & Flexner LLP
Counsel for respondent The Bank of New York Mellon, solely as
Securities Administrator for J.P. Morgan Mortgage Acquisition Trust 2006-
WMC4
Stephen L. Ascher
Jenner & Block LLP
Counsel for defendant WMC Mortgage LLC
30
CORPORATE DISCLOSURE STATEMENT
Pursuant to Rule 500.1(f), respondent BNYM, solely as Securities
Administrator for J.P. Morgan Mortgage Acquisition Trust 2006-WMC4, states
that it is a wholly-owned subsidiary of The Bank of New York Mellon
Corporation, a Delaware corporation, which is a publicly traded company. No
person or entity owns 10% or more of The Bank of New York Mellon
Corporation’s stock. BNYM further states that it has several hundred subsidiaries
and affiliates, which are too numerous to list, but refers the Court to Exhibit 21.1 to
The Bank of New York Mellon Corporation’s 2015 form 10-K, attached hereto,
which lists The Bank of New York Mellon Corporation’s significant legal entity
subsidiaries, as defined by Securities and Exchange Commission rules, as of
December 31, 2015.
Exhibit 21.1
THE BANK OF NEW YORK MELLON CORPORATION
PRIMARY SUBSIDIARIES
DEC. 31, 2015
The following are primary subsidiaries of The Bank of New York Mellon Corporation as of Dec. 31, 2015 and
the states or jurisdictions in which they are organized. The names of particular subsidiaries have been omitted
because, considered in the aggregate as a single subsidiary, they would not constitute, as of Dec. 31, 2015, a
“significant subsidiary” as that term is defined in Rule 1-02(w) of Regulation S-X under the Securities Exchange
Act of 1934, as amended.
• BNY Capital Funding LLC – State of Organization: Delaware
• BNY Capital Markets Holdings, Inc. – State of Incorporation: New York
• BNY Capital Resources Corporation – State of Incorporation: New York
• BNY International Financing Corporation – Incorporation: United States
• BNY Mellon Asset Management Japan Limited – Incorporation: Japan
• BNY Mellon Capital Markets, LLC – State of Organization: Delaware
• BNY Mellon Fixed Income Securities, LLC – State of Organization: Delaware
• BNY Mellon Fund Managers Limited – Incorporation: England
• BNY Mellon Global Management Limited – Incorporation: Ireland
• BNY Mellon Holdings (UK) Limited – Incorporation: England
• BNY Mellon International Asset Management Group Limited – Incorporation: England
• BNY Mellon International Asset Management (Holdings) Limited – Incorporation: England and Wales
• BNY Mellon International Asset Management (Holdings) No. 1 Limited – Incorporation: England and Wales
• BNY Mellon Investment Management (APAC) Holdings Limited – Incorporation: England
• BNY Mellon Investment Management APAC LP – Incorporation: England and Wales
• BNY Mellon Investment Management Cayman Ltd. – Incorporation: Cayman Islands
• BNY Mellon Investment Management EMEA Limited – Incorporation: England
• BNY Mellon Investment Management Europe Holdings Limited – Incorporation: England
• BNY Mellon Investment Management (Europe) Limited – Incorporation: England
• BNY Mellon Investment Management (Jersey) Limited – Incorporation: Jersey
• BNY Mellon Investment Servicing (US) Inc. – State of Incorporation: Massachusetts
• BNY Mellon, National Association – Incorporation: United States
• BNY Mellon Securities Services (Ireland) Limited – Incorporation: Ireland
• BNY Mellon Trust Company (Ireland) Limited – Incorporation: Ireland
• BNY Real Estate Holdings LLC – State of Organization: Delaware
• BNYM GIS Funding I LLC – State of Organization: Delaware
• BNYM GIS Funding III LLC – State of Organization: Delaware
• BNYM GIS (UK) Funding II LLC – State of Organization: Delaware
• Insight Investment Funds Management Limited – Incorporation: England
• Insight Investment Management (Global) Limited – Incorporation: England
• Insight Investment Management Limited – Incorporation: England
• MAM (MA) Holding Trust – State of Incorporation: Massachusetts
• MBC Investments Corporation – State of Incorporation: Delaware
• Mellon Canada Holding Company – Incorporation: Canada
• Mellon Overseas Investment Corporation – Incorporation: United States
THE BANK OF NEW YORK MELLON CORPORATION
PRIMARY SUBSIDIARIES
DEC. 31, 2015
Continued
• One Wall Street Corporation – State of Incorporation: New York
• Pershing Group LLC – State of Organization: Delaware
• Pershing Holdings (UK) Limited – Incorporation: England
• Pershing Limited – Incorporation: England
• Pershing LLC – State of Organization: Delaware
• Pershing Securities Limited – Incorporation: England
• Standish Mellon Asset Management Company LLC – State of Organization: Delaware
• TBC Securities Co., Inc. – State of Incorporation: Massachusetts
• The Bank of New York Mellon – State of Organization: New York
• The Bank of New York Mellon (International) Limited – Incorporation: England
• The Bank of New York Mellon (Luxembourg) S.A. – Incorporation: Luxembourg
• The Bank of New York Mellon SA/NV – Incorporation: Belgium
• The Dreyfus Corporation – State of Incorporation: New York
• Walter Scott & Partners Limited – Incorporation: Scotland