CORPORATE DISCLOSURE STATEMENT
Pursuant to Rule 500.1(f) of the Rules of Practice for the Court of Appeals of the State of
New York, Defendant-Respondent Quicken Loans Inc. states that Quicken Loans Inc. is a
wholly-owned subsidiary of Rock Holdings Inc. Quicken Loans Inc.’s corporate affiliates are
Title Source Inc.; In-House Realty LLC; Rock Processing LLC; and Rock Connections LLC.
One Reverse Mortgage LLC is a corporate subsidiary of Quicken Loans Inc.
250 VESEY STREET • NEW YORK, NEW YORK 10281.1047
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ALKHOBAR AMSTERDAM ATL ANTA BEIJING BOSTON BRISBANE BRUSSELS CHICAGO CLEVEL AND COLUMBUS DALL AS
DETROIT DUBAI DÜSSELDORF FRANKFURT HONG KONG HOUSTON IRVINE JEDDAH LONDON LOS ANGELES MADRID
MEXICO CIT Y MIAMI MIL AN MINNEAPOLIS MOSCOW MUNICH NEW YORK PARIS PERTH PITTSBURGH RIYADH
SAN DIEGO SAN FRANCISCO SÃO PAULO SHANGHAI SILICON VALLEY SINGAPORE SYDNEY TAIPEI TOKYO WASHINGTON
April 10, 2017
BY HAND & DIGITAL FILING
John P. Asiello
Chief Clerk and Legal Counsel to the Court
Court of Appeals of New York
20 Eagle Street
Albany, New York 12207
Re: Deutsche Bank National Trust Co. v. Quicken Loans Inc., APL-2016-
00237
Dear Mr. Asiello:
We represent the Defendant-Respondent in this appeal, Quicken Loans Inc.
(“Quicken Loans”). The Clerk’s Office has informed the parties that the Court
may determine, on its own motion, to review this appeal by its alternative,
summary procedure pursuant to Rule 500.11 of the Court’s Rules of Practice. That
procedure is fully appropriate here, on the ground that there is “recent, controlling
precedent” and other long-established New York law that disposes of this appeal.
See Rule 500.11(b)(2) & (6).
As the First Department ruled, “dismissal of the action is mandated by the
Court of Appeals’ decision in ACE Sec. Corp., Home Equity Loan Trust, Series
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2006-SL2 v DB Structured Prods., Inc. (25 NY3d 581 [2015]), which sets forth a
clear rule that a breach of contract claim in an RMBS put-back action accrues on
the date the allegedly false representations and warranties were made.” (Order at
3.) The Plaintiff-Appellant here brought this action for alleged breach of
representations and warranties more than six years after they were made. Under a
straightforward application of the rule from this Court’s ACE decision, Deutsche
Bank National Trust Company’s (“Deutsche Bank”) action is therefore barred.
The First Department correctly determined that ACE mandates dismissal of
the Complaint here and that, alternatively, the Complaint should be dismissed for
the reasons set out by the U.S. Court of Appeals for the Second Circuit in Deutsche
Bank National Trust Co. v. Quicken Loans Inc., 810 F.3d 861 (2d Cir. 2015). In
that case, both the U.S. District Court for the Southern District of New York and
the Second Circuit rejected the same arguments Deutsche Bank made to both the
Supreme Court and the First Department in this action and now reiterates to this
Court. Like the First Department, the Second Circuit ruled that, under this Court’s
decision in ACE, Deutsche Bank’s claims for alleged breach of representations and
warranties accrued when those representations and warranties were made and held
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that Deutsche Bank “has not persuaded us that the instant contract functions
differently than that considered by the New York Court of Appeals in ACE.” 810
F.3d at 867. The federal appellate court also observed that “the New York Court
of Appeals’ recent decision [in ACE] is clear” concerning how to resolve the
statute of limitations issues presented by these cases. Id. at 865.
As the First Department’s and the Second Circuit’s decisions reflect, ACE is
indeed “recent, controlling precedent” which disposes of this appeal. A total of
four courts applying New York law have now rejected the very arguments that
Deutsche Bank re-asserts in this Court, under the same contractual language.
Deutsche Bank’s objection to alternative review should be overruled, and the Court
should affirm the First Department’s Order.
BACKGROUND
A. The Sale of Loans by Quicken Loans to Morgan Stanley
On June 1, 2006, Quicken Loans entered into a contract, termed the Second
Amended and Restated Mortgage Loan Purchase and Warranties Agreement
(“MLPWA”), to sell mortgage loans to Morgan Stanley Mortgage Capital, Inc.
(“Morgan Stanley”). (R.28-29, 31 (Compl. ¶¶ 14-16, 22); R.78-95 (MLPWA §§
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9.01, 9.02).) The contract was subject to representations and warranties by
Quicken Loans concerning the characteristics of the loans at the time of their sale.
(R.78-95.) Each of those representations and warranties was made “as to each
Mortgage Loan, as of the related Closing Date for such Mortgage Loan.” (R.82
(MLPWA § 9.02) (emphasis added).) Pursuant to the MLPWA and a series of
Purchase Price and Term Letters executed between Quicken Loans and Morgan
Stanley, the loans were sold in groups on various dates from December 7, 2006 to
May 30, 2007. (R.645-1514.) The Closing Date for the last sale of loans under the
MLPWA was May 31, 2007. (Id.)
B. The Repurchase Provision
The MLPWA set forth, in a section of the agreement addressing remedies,
the conditions precedent to bringing an action for breach of the representations and
warranties. (R.46 (Compl. ¶ 70); R.95-98 (MLPWA § 9.03).) It required, among
other things, that Quicken Loans be given sixty days to cure or repurchase prior to
the commencement of any action for “breach of any representations and
warranties.” (Id.) Section 9.03 of the MLPWA provided that:
Any cause of action against the Seller relating to or
arising out of the breach of any representations and
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warranties made in Subsections 9.01 and 9.02 shall
accrue as to any Mortgage Loan upon (i) discovery of
such breach by the Purchaser or notice thereof by the
Seller to the Purchaser, (ii) failure by the Seller to cure
such breach, substitute a Qualified Substitute Mortgage
Loan or repurchase such Mortgage Loan as specified
above and (iii) demand upon the Seller by the Purchaser
for compliance with this Agreement.
(R.98.) The MLPWA further provided that cure and repurchase were the sole
remedies for a breach of the representations and warranties. (Id.)
C. The Complaint and Quicken Loan’s Motion to Dismiss
This action by Plaintiff-Appellant for alleged breach of warranties and
representations was not filed until August 30, 2013, more than six years after the
Closing Dates on which the pertinent representations and warranties were effective
with respect to the loans sold pursuant to the MLPWA. (R.294-295.)
On March 17, 2014, Quicken Loans moved to dismiss the Complaint based
on the six-year statute of limitations applicable to breach of contract actions.
(R.20-21.) As Quicken Loans stated in its motion to dismiss, the loans at issue in
this action were all sold between December 2006 and May 31, 2007, and thus the
representations and warranties on those loans were effective—and any alleged
breach of those representations and warranties would have occurred, if at all—by
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no later than May 2007, which is more than six years before this action was
brought. (R.646-1514.)
D. The Supreme Court’s Order Dismissing the Complaint
The Supreme Court granted Quicken Loan’s motion to dismiss, ruling that
“the entire complaint is barred by the statute of limitations.” (R.18.) The court
held that “any breach of Quicken’s representations and warranties under the
[MLPWA] occurred on or before ... May 31, 2007, more than six years prior to the
commencement of the action,” which was therefore “untimely under New York’s
six year statute of limitations for breach of contract. (CPLR 213(2)).” (R.15.)
Based on ACE Securities Corp. v. Deutsche Bank Structured Products, Inc.,
112 A.D.3d 522 (1st Dep’t 2013), aff’d, 25 N.Y.3d 581 (2015), the Supreme Court
rejected Deutsche Bank’s argument that “the cause of action arises under an
‘Accrual Clause’ in the [MLPWA], rather than at the time the representations and
warranties were made.” (R.15.) It held that “such a provision cannot serve to
extend the statute of limitations for a cause of action for breach of representations
and warranties which, under this Department’s decision in ACE (112 AD3d at
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April 10, 2017
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522), accrues when the representations and warranties are made, not when the
repurchase demand is made and refused.” (R.15-16.)
The Supreme Court also rejected Deutsche Bank’s argument that “Quicken
breached its obligation under MLPWA § 9.03 to notify the Trustee of Quicken’s
own discovery of breaches of the representations and warranties, and that the dates
of Quicken’s discovery cannot be resolved on a motion to dismiss.” (R.16.) The
court noted that “[c]onsistent with this Department’s holding in ACE that the
failure to comply with a repurchase demand is not an independent breach of
contract, this court has previously held that a seller’s failure to notify the trustee of
breaching loans is also not an independent breach of contract.” (Id.) “[N]on-
compliance with the notice requirement under the repurchase protocol, a remedial
provision,” the court ruled, “does not give rise to an independent breach of contract
by the seller, or expand the remedies available against the seller under the
contract.” (Id.)
E. The First Department’s Decision and Order
By Decision and Order dated August 11, 2016, the First Department
unanimously affirmed the trial court’s decision, ruling that this action is time-
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barred under the Court of Appeals’ decision in ACE and in accordance with the
reasoning in the Second Circuit’s decision in Deutsche Bank Nat’l Trust Co. v.
Quicken Loans Inc., 810 F.3d 861 (2d Cir. 2015).
The First Department dismissed the Complaint on two separate grounds.
First, the court applied the rule from ACE that “a breach of contract claim in an
RMBS put-back action accrues on the date the allegedly false representations and
warranties were made.” (Order at 8 (citing ACE, 25 N.Y.3d at 589).) The court
observed that the representations and warranties at issue in this action were
effective between December 7, 2006 and May 31, 2007. Accordingly, applying
the six-year statute of limitations applicable to a cause of action for breach of
contract, the First Department ruled that “plaintiff’s causes of action for breach of
contract accrued, at the latest, on May 31, 2007, and this action, commenced more
than six years later on August 30, 2013, is barred by the statute of limitations.”
(Id. at 9.)
The First Department rejected Deutsche Bank’s argument that the “accrual”
term in § 9.03 of the MLPWA operates to extend the limitations period here, until
after Deutsche Bank discovers the alleged breaches and makes a demand on
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Quicken Loans to repurchase loans allegedly not complying with the
representations and warranties in the agreement. That argument, the First
Department noted, would improperly “‘postpone the time from which the period of
limitation is to be computed’” (Order at 9-10 (quoting Kassner, 46 N.Y.2d at
551)), and would, separately, “contravene the principle that ‘New York does not
apply the ‘discovery’ rule to statute of limitations in contract actions,’” as that
long-standing principle of New York law was recently re-affirmed by this Court in
ACE. (Order at 10 (quoting ACE, 25 N.Y.3d at 594).) This would “create[] an
imprecisely ascertainable accrual date—possibly occurring decades in the future,
since some of the loans extend for 30 years—which the Court of Appeals has
‘repeatedly ... rejected in favor of a bright line approach.’” Id. (quoting ACE, 24
N.Y.3d at 593-94).
The First Department separately held that, even assuming for the sake of
argument that the accrual provision in the MLPWA could be deemed to operate as
Deutsche Bank advocated, it would still render Deusche Bank’s action untimely.
The First Department invoked the Second Circuit’s decision in “a matter involving
an accrual provision that is materially identical to the one at issue here,” and
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April 10, 2017
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indeed, involving the same parties as this case. (Order at 10 (discussing Deutsche
Bank Nat’l Trust Co. v. Quicken Loans Inc., 810 F.3d 861 (2d Cir. 2015)).) The
First Department held, relying on both ACE and the Second Circuit’s decision, that
the demand requirement in the MLPWA is a procedural precondition to suit—not a
substantive condition for a cause of action for breach of contract—and therefore
does not delay accrual of a cause of action for breach of contract. On this separate
ground, the First Department ruled that “all of plaintiff’s claims accrued no later
than May 31, 2007, and were not timely asserted when plaintiff commenced this
action more than six years later.” (Order at 14.)
The First Department subsequently granted Deutsche Bank’s motion for
leave to appeal to this Court. The Clerk of this Court, in turn, informed the parties
by letter dated February 8, 2017 that this appeal may be determined by the
alternative review procedure, pursuant to section 500.11 of the Court’s Rules of
Practice.
Chief Clerk John P. Asiello
April 10, 2017
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ARGUMENT
I. THE COURT SHOULD OVERRULE DEUTSCHE BANK’S
OBJECTION TO STREAMLINED REVIEW IN THIS COURT
The Court has appropriately determined that this appeal may be decided
through the streamlined review procedures set forth in Rule 500.11, and Deutsche
Bank’s objection to that process should be overruled.
Section 500.11(b)(2) provides in pertinent part that the Court’s alternative
review procedure is appropriate when “recent, controlling precedent” disposes of
the appeal. “[O]ther appropriate factors,” such as long- and well- established New
York law, similarly warrant summary review and disposition here. Id.
§ 500.11(b)(6). This is not a close case. Indeed, there are four separate, firmly
established bases from this Court’s precedents and under New York’s General
Obligations Law for affirming the First Department’s order.
A. There Are Multiple Bases for Affirming the First Department’s
Order
First, this Court’s recent decision in ACE establishes that where
representations and warranties concern the characteristics of loans as of the date
those representations and warranties are made, they are breached, if at all, on that
date. That rule disposes of this appeal. This action was commenced more than six
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years after the representations and warranties from the MLPWA at issue were
made. While Deutsche Bank contends that a remedial provision in the contract
operates to delay accrual of its causes of action, every New York court to have
considered this kind of provision, including the First Department below and the
Second Circuit in a suit between these very parties, has rejected Deutsche Bank’s
argument—for one or more of the reasons set out below. Thus, contrary to
Deutsche Bank’s assertion in its brief (at 4), this appeal does not present a
“critical” question, but one that has been definitively resolved. See Deutsche Bank
Nat’l Trust Co. v. Flagstar Capital Markets Corp., 36 N.Y.S.3d 135, 137 (1st
Dep’t 2016); Deutsche Bank Nat’l Trust Co., solely as Trustee of the GSR Mortg.
Loan Trust 2007-OA1 v. Quicken Loans, Inc., 810 F.3d 861, 867 (2d Cir. 2015),
aff’g No. 13 Civ. 6482 (PAC), 2014 WL 3819356, at *3 (S.D.N.Y. Aug. 4, 2014)
(“Thus, notwithstanding the ‘shall accrue’ language ... the Trustee has not
persuaded us that the instant contract functions differently than that considered by
the New York Court of Appeals in ACE.”); Lehman XS Trust, Series 2006-4N, 643
F. App’x 14, 15 (2d Cir. 2016), aff’g, Lehman XS Trust v. Greenpoint Mortg.
Funding, Inc., 991 F. Supp. 2d 472, 478-79 (S.D.N.Y. 2014); Bank of N.Y Mellon
Chief Clerk John P. Asiello
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v. WMC Mortg., LLC, 17 N.Y.S.3d 613, 617 (Sup. Ct. N.Y. Cty. 2015); U.S. Bank
Nat’l Ass’n, Solely as Trustee of the J.P. Morgan Alt. Loan Trust 2007-A2 v.
Greenpoint Mortg. Funding, Inc., No. 651954/2013, 2015 WL 915444, at *6 & n.4
(Sup. Ct. N.Y. Cty. Mar. 3, 2015), aff’d, 45 N.Y.S.3d 11 (1st Dep’t 2016); Lehman
XS Trust, Series 2006-GP2 v. Greenpoint Mortg. Funding, Inc., Nos. 12 Civ. 7935
(ALC) (HBP), 2014 WL 1301944, at *3 (S.D.N.Y. Mar. 31, 2014).
Second, even assuming the remedial provision of the MLPWA could be read
as an agreement that Deutsche Bank’s causes of action for an alleged breach of a
representation and warranty would not arise until, inter alia, Deutsche Bank
discovered the breach and made a demand on Quicken Loans, that would be
contrary to New York’s public policy. ACE held, as the First Department properly
observed, that “New York does not apply the ‘discovery’ rule to statutes of
limitations in contract actions.” ACE, 25 N.Y.3d at 594. It is a “bright-line rule”
that a breach of contract cause of action arises when a party “‘possess[es] the legal
right to [make a] demand [...],’ not years later when [it] actually [makes] the
demand.” Id. at 594 (quoting Hahn Automotive Warehouse, Inc. v. American
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Zurich Ins. Co., 18 N.Y.3d 765, 767 (2012) (emphasis supplied by the Court in
ACE)).
Third, even making yet another assumption for the sake of argument that this
accrual language were not contrary to New York public policy, it does not operate
to forestall the onset of the statute of limitations as Deutsche Bank contends. That
is because the remedial provision here sets out a procedural precondition that
Deutsche Bank must comply with in order to commence a lawsuit, not a
substantive element of a cause of action for breach of contract. Namely, before
commencing a lawsuit, Deutsche Bank was required by the MLPWA to make a
demand on Quicken Loans to cure or repurchase allegedly non-compliant loans
and Quicken Loans must be afforded a 60-day cure period. That sort of demand
procedure, ACE held, does not operate under New York law to delay accrual of a
cause of action because it is not a substantive element of a cause of action for
breach. Here, just as in ACE, Deutsche Bank “breached the representations and
warranties in the parties’ agreement, if at all, the moment the MLPA [here, the
MLPWA] was executed.” ACE, 15 N.Y.3d at 598.
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Fourth, even assuming that Deutsche Bank could resolve all of these
multiple legal problems, New York has long codified two rules that separately
foreclose Deutsche Bank’s efforts to delay onset of the limitations period here.
Specifically, parties may not extend a limitations period before a cause of action
for breach of contract even arises. See N.Y. Gen. Oblig. Law § 17-103(1) (parties
may extend the time for bringing suit only “after the accrual of the cause of
action”) (emphasis added); id. § 17-103(3) (any purported extension in violation of
this rule “has no effect”). Moreover, even after a cause of action accrues, parties
may agree to an extension only if it is both (i) finite, and (ii) for a period less than
the original limitations period (i.e., six years). See N.Y. Gen. Oblig. Law § 17-
103(1) (permitting an extension “within the time that would be applicable if the
cause of action had arisen at the date of the promise [to extend the limitations
period], or within such shorter time as may be provided in the promise”).
Deutsche Bank’s brief does not address—or even mention—these statutory
provisions, but its arguments contravene both of them. As Deutsche Bank would
have it, the MLPWA indefinitely delays accrual of any cause of action for breach
of representations and warranties until after, inter alia, Deutsche Bank discovers
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the breach and makes a demand on Quicken Loans to comply with the agreement.
That is not only an improper ex ante agreement to extend a limitations period, but
it would extend the period indefinitely and potentially for a period far in excess of
the ordinary, six-year limitations period applicable to a cause of action for breach
of contract. That has long been forbidden by New York law, as this Court has
previously held. See, e.g., John J. Kassner & Co. v. City of New York, 46 N.Y.2d
544, 552 (1979) (applying the rule of General Obligations Law § 17-103(1) & (3)
that a provision “adopted at the inception of the contract and not after the cause of
action had accrued[] may not serve to extend the Statute of Limitations”).
B. Deutsche Bank’s Objection to Alternative Review Should Not Be
Sustained on the Basis of an Unpublished Decision in Delaware
Deutsche Bank’s principal basis for resisting alternative review here is that
the Court should not “depart” from an unpublished decision applying Delaware
law. But the contract here provides for the application of New York law (R.106),
which is simply different in pertinent respects that are firmly established.
Critically, the Delaware Chancery Court relied on a recent enactment by the
Delaware General Assembly that expressly allows parties to specify in their
agreement a limitations period applicable to a claim for breach of contract. That
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alternative, agreed-upon limitations period can be set even before the claim accrues
and also for “an indefinite period of time.” Bear Stearns Mortg. Funding Trust
2006-SL1 v. EMC Mortg. LLC, No. 7701-VCL, 2015 WL 139731, at *12 (Del. Ch.
Jan. 12, 2015). As discussed directly above, New York law is to the contrary.
New York’s General Obligations Law expressly forbids any agreement to extend a
limitations period for a breach of contract cause of action before it arises and, in
any event, does not allow any agreed-upon extension to be for an indefinite period.
See N.Y. Gen. Oblig. Law § 17-103(1); Kassner, 46 N.Y.2d at 552. There is thus
no reason for the Court to hesitate over any differences between Delaware and
New York law as applied to this case when the two states’ legislative bodies have
made different policy choices.
Indeed, in this same vein, while the Delaware Chancery Court noted that
Delaware law treats “a contractual accrual provision as a condition precedent to a
plaintiff’s ability to sue,” the court did not draw a distinction between procedural
and substantive conditions precedent to suit. See Bear Stearns, 2015 WL 139731
at *10. But that is a fundamental distinction which, as this Court underscored in
ACE, New York law has observed for “over 100 years” in determining when a
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cause of action for breach of contract arises. ACE, 25 N.Y.3d at 597. The Court
also applied this long-entrenched framework in ACE, and Deutsche Bank has not
offered any persuasive reason why the Court should use this appeal as a vehicle to
eradicate or modify it.
Finally, Deutsche Bank fails to inform the Court that not only was Bear
Stearns an unpublished decision, but a petition for leave to appeal to the Delaware
Supreme Court was denied. See Bear Stearns Mortg. Funding Trust 2006-SL1 v.
EMC Mortg. LLC, No. 82, 2015 WL 1228954 (Del. Mar. 17, 2015).
***
There is, in short, not only “recent, controlling precedent” that mandates
affirmance of the First Department’s order, but also long-established New York
statutory law that compels the same result. The First Department’s order should be
affirmed on one or more of these multiple bases set out above—and in more detail
below—and overrule Deutsche Bank’s objection to a streamlined review pursuant
to Rule 500.11 of the Court’s Rules.
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II. THE FIRST DEPARTMENT PROPERLY APPLIED
CONTROLLING AND SETTLED LAW
A. This Court’s Decision in ACE Mandates Dismissal of This Action
As the First Department correctly held, this Court’s recent decision in ACE
Sec. Corp. v. Deutsche Bank Structured Prods. Inc., 25 N.Y.3d 581 (2015),
“mandate[s]” dismissal of Deutsche Bank’s action, which was brought more than
six years after the date on which the representations and warranties became
effective. (Order at 3 (emphasis added).) ACE resolves the issue of when the
statute of limitations runs on an action for breach of representations and warranties
with respect to mortgages in RMBS transactions.
In ACE, the Court held that such actions must be brought within six years of
the date on which the representations and warranties were made. It stated that
“[w]here ... representations and warranties concern the characteristics of their
subject as of the date they are made, they are breached, if at all, on that date.”
N.Y.3d at 589. The Court rejected the argument that an alleged breach does not
occur until a demand is made for repurchase of the purportedly defective loans and
the defendant refuses the demand. Id. It held that the date on which the
representations and warranties were allegedly breached is the triggering event for
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the running of the statute of limitations, not the later date on which demand is
made. Id.
Applying that straightforward teaching from ACE here, and based on the
undisputed closing dates, the First Department properly ruled that “plaintiff’s
causes of action for breach of contract accrued, at the latest, on May 31, 2007, and
this action, commenced more than six years later on August 30, 2013, is barred by
the statute of limitations.” (Order at 9 (citing CPLR 213(2)).)
B. The “Accrual” Language in the Repurchase Provision Does Not
Extend the Limitations Period
Deutsche Bank’s principal argument is that ACE does not dispose of this
appeal because the repurchase clause in § 9.03 of the agreement here, though
similar to that in ACE, includes the additional word “accrue.” (See DB Ltr. at 10,
23.) According to Deutsche Bank, this word should be deemed to delay
indefinitely the running of the statute of limitations until such time as Deutsche
Bank were to discover alleged breaches and decide to make a demand on Quicken
Loans for cure or repurchase of any allegedly defective loan and was refused. (Id.)
In other words, as Deutsche Bank would have it, even if it waited until 2036 (i.e.,
through the full life of the loan) to file suit alleging a breach of representations and
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warranties that occurred, if ever, in 2006, its claim would be timely so long as
Deutsche Bank filed within six years of demanding repurchase. That hardly serves
the purpose of “fairness to the defendant,” which Deutsche Bank acknowledges is
a “crucial aim of statutes of limitation.” (Id. at 14.)
The First Department properly rejected this notion, stating that “Plaintiff’s
attempt to distinguish ACE by the absence of an accrual provision in that case is
unavailing.” (Order at 9.) As noted, ACE’s core holding is that where a claim is
based on a breach of representations and warranties, that breach occurs at the time
the representations and warranties are made—here, no later than the Closing
Date: “Where, as in this case, representations and warranties concern the
characteristics of their subject as of the date they are made, they are breached, if at
all, on that date.” ACE, 25 N.Y.3d at 589.
ACE further held that the limitations period begins running at the time the
representations and warranties are made even where a contract provides that a
plaintiff must clear procedural hurdles—such as notice, demand, opportunity to
cure, and failure to repurchase—before bringing suit. Relying on well-established
New York law, ACE differentiated between a substantive condition precedent and
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a procedural condition precedent. With a substantive condition precedent, there is
no “legal wrong” until the plaintiff satisfies the conditions laid out in the contract.
Id. at 597. Conversely, with a procedural condition precedent, the “legal wrong
has occurred” already—here, the alleged breach of the representation and
warranty—and the conditions are merely requirements the plaintiff must satisfy
before commencing a lawsuit. Id.
The conditions in ACE were procedural. “The Trust suffered a legal wrong
at the moment [the seller] allegedly breached the representations and warranties.”
Id. At that moment, a cause of action existed, but “the Trust was just limited in its
remedies for that breach” until it cleared the procedural hurdles set out in the
contract. Id. at 598. ACE therefore distinguished procedural conditions—
including cure or repurchase obligations—from situations in which “parties ...
contractually agree to undertake a separate obligation, the breach of which does not
arise until some future date.” Id. at 594.
ACE makes clear that a repurchase obligation in connection with a breach of
a representation and warranty does “not fit this description” because it does not
“expressly guarantee[] future performance.” Id. at 594-95. Instead, the repurchase
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obligation at issue in ACE was “dependent on, and indeed derivative of, [the]
representations and warranties,” which “were breached, if at all, on” the closing
date. Id. at 595. The repurchase obligations thus did not serve to delay the running
of the statute of limitations. Id. at 594. That same framework applies here to bar
Deutsche Bank’s action.
Deutsche Bank tries to avoid this result by contending that § 9.03 of the
agreement sets forth a substantive condition precedent that deferred accrual of the
statute of limitations until Quicken Loans failed to repurchase upon demand. (DB
Ltr. at 14-16.) That is incorrect because here, as in ACE, the “legal wrong” is the
breach of representations and warranties. Indeed, the contract here provides “[a]ny
cause of action against the Seller relating to or arising out of a breach of any
representations and warranties ... shall accrue upon” a demand and failure to
repurchase a breaching loan. (R.98, § 9.03 (emphasis added)).
This language makes clear that the “breach” giving rise to a cause of action
is the “breach of any of the representations and warranties,” rather than the failure
to repurchase following a demand. As the First Department explained, “the
accrual provision does not compel defendant to undertake a promised future
Chief Clerk John P. Asiello
April 10, 2017
Page 24
performance, separate from its obligations to cure or repurchase defective loans”
and it therefore does not delay the statute of limitations from running on the
underlying breach. Deutsche Bank Nat’l. Trust Co., 36 N.Y.S.3d at 137 (emphasis
added).
Deutsche Bank has no persuasive response to this contractual language.
Deutsche Bank repeatedly emphasizes that it cannot sue until the requirements of
§ 9.03 have been satisfied. (See, e.g., DB Ltr. at 23.) But that is only stating that
the demand requirement and repurchase obligations are both conditions which
must be satisfied. The key difference between the two kinds of preconditions is
whether the breach exists prior to the conditions being satisfied (in which case it is
procedural) or whether there is no breach until the conditions are satisfied (in
which case it is substantive). See ACE, 25 N.Y.3d at 597-98. Here, the contract
makes clear that the conditions are predicates to suit for a “breach of any
representations and warranties,” i.e., a breach that existed, if ever, at the time the
contract closed. Put another way, the plaintiff in ACE was barred from bringing
suit until it satisfied the conditions in the contract, but that did not mean that the
limitations period started to run only once those conditions were satisfied. The
Chief Clerk John P. Asiello
April 10, 2017
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result is the same here: Deutsche Bank is barred from bringing suit until it satisfies
the demand requirement and allows for the cure period to pass, but, under the
teaching of ACE, that does not mean the onset of the six-year limitations period is
forestalled until those procedural requisites are satisfied.
Deutsche Bank also invokes ACE’s observation that parties may
contractually agree to undertake a separate obligation, the breach of which does not
arise until some future date. (DB Ltr. at 22.) But that observation does not apply
to this case any more than it applied to the contract in ACE. In that part of the
decision, the Court of Appeals discussed cases like Bulova Watch Co. v. Celotex
Corp., 46 N.Y.2d 606 (1979), in which a party makes a “separate and distinct
promise” to remedy a wrong that may occur in the future. ACE, 25 N.Y.3d at 595.
In Bulova, for example, a roofing contractor agreed to replace a roof and,
separately, guaranteed to make any necessary repairs to the roof over a twenty-year
period. The Court held that the six-year limitations period on breach of that
separate guarantee ran from “each time a breach of the obligation to repair the
bonded roof occurred.” Bulova, 46 N.Y.2d at 611.
Chief Clerk John P. Asiello
April 10, 2017
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That is not the kind of agreement the parties made here. Quicken Loans
made specific, limited representations and warranties concerning the characteristics
of the underlying loans as of the date of the agreement and the closing date of each
loan. The repurchase protocol applies to a breach of those representations and
warranties, and sets out the procedural requirements Deutsche Bank had to satisfy
before obtaining a remedy for any such breach. Under ACE, that makes the
repurchase protocol precisely the kind of procedural condition that does not
operate to delay the limitations period under New York law.
This framework furthers New York’s public policy. As this Court explained
in ACE, New York’s statute of limitations law is concerned with promoting
“finality, certainty, and predictability.” ACE, 25 N.Y.3d at 593. Deutsche Bank
claims that the First Department ruling creates “an imprecisely ascertainable
accrual date.” (DB Ltr. at 13.) But that is precisely what Deutsche Bank’s
interpretation would do, because, as Deutsche Bank would have it, it should be
allowed to bring suit through the year 2036 (i.e., at any point during the full 30-
year life of the loan) about a breach that would have occurred, if ever, in 2006. No
contracting party could plan its affairs properly knowing that a supposed breach
Chief Clerk John P. Asiello
April 10, 2017
Page 27
could be the basis of a contract action 30 years later, as the Court explained in
ACE. ACE, 25 N.Y.3d at 596-97 (expressing “extreme[] reluctan[ce]” to
“transform[] a standard breach of contract remedy, i.e., damages, into one that
lasted for the life of the investment”). This well-established New York policy
similarly mandates dismissal of Deutsche Bank’s complaint here, as the First
Department properly ruled.
C. The General Obligations Law Separately Bars This Action
Even assuming for the sake of argument that the parties intended § 9.03 to
delay the running of the limitations period—as Deutsche Bank contends—
Deutsche Bank’s suit would still be untimely because any such agreement would
be unenforceable under New York law, on two separate grounds.1
1 Proposed amicus curiae GreenPoint Mortgage Funding, Inc. (“GreenPoint”) submits
that the Second Circuit properly applied ACE in ruling that Deutsche Bank’s claims in that case
(under a materially identical agreement) accrued when the representations and warranties at issue
were made and that the demand requirement did not delay accrual because it is a procedural
condition precedent to suit. (See GreenPoint Ltr. Br. at 4-6, 11-14.) GreenPoint also makes a
curious argument that the Court should reach out to rule in this case that the demand requirement
in § 9.03 of the MLPWA is enforceable. Indeed, GreenPoint even goes so far as to contend that
the Court should use this case as a vehicle to “resolve [a] current split” on the enforceability of
the demand requirement as a precondition to suit. (See id. at 18-19.) That issue is not presented
by this appeal, and, respectfully, the Court need not and should not reach it in disposing of this
case. GreenPoint is improperly using an amicus brief to attempt to persuade this Court to rule on
an issue that is presented by GreenPoint’s own appeal in the First Department where GreenPoint
currently has a pending motion for leave to appeal to this Court.
Chief Clerk John P. Asiello
April 10, 2017
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1. The General Obligations Law Does Not Permit an
Agreement to Extend a Limitations Period Before Accrual
This Court has long held that extension agreements “made prior to the
accrual of the cause of action ... have ‘no effect’” because they violate New York’s
“public policy” of “giving repose.” Kassner, 46 N.Y.2d at 550, 552. Specifically,
any agreement to extend a limitations period for a breach of contract cause of
action “made at the inception of liability [] is unenforceable because a party cannot
‘in advance, make a valid promise that a statute founded in public policy shall be
inoperative.’” Id. at 551 (quoting Shapley v. Abbott, 42 N.Y. 443, 452 (1870)).
This prohibition is codified in N.Y. General Obligations Law § 17-103, which
states that parties may extend the time for bringing suit only “after the accrual of
the cause of action.” N.Y. Gen. Oblig. Law § 17-103(1) (emphasis added). The
Legislature has also expressly declared that any extension made in violation of §
17-103 “has no effect.” Id. § 17-103(3); accord Kassner, 46 N.Y.2d at 552. In
Kassner, the Court applied this rule and held that a provision purporting to
(continued…)
In a similar vein, proposed amici LMI Partners, LLC and its affiliates make extended
arguments in their submission about commercial mortgage-backed securities trusts. This group
of amici does not present the Court with any pertinent contractual language from these separate
instruments, which in any event are also not at issue on this appeal.
Chief Clerk John P. Asiello
April 10, 2017
Page 29
“postpone the accrual of [a] cause of action” for breach of contract “may not serve
to extend the Statute of Limitations” under § 17-103(1) & (3) of the General
Obligations Law because “it was adopted at the inception of the contract and not
after the cause of action had accrued.” Kassner, 46 N.Y.2d at 552.
Deutsche Bank does not even mention these provisions of New York’s
General Obligation Law, but they dispose of its extended argument invoking
“freedom of contract” norms. The First Department properly recognized that
“freedom of contract” cannot mean freedom to contravene legislative enactments
concerning what parties may and may not agree to, and so the court here enforced
the contract in accordance with New York law. This Court’s precedents and the
General Obligations Law make clear that, even if § 9.03 of the parties’ agreement
could be interpreted to extend the limitations period “at the inception of the
contract,” such an extension would have “no effect.” Kassner, 46 N.Y.2d at 552.
Other courts have ruled similarly. Applying this Court’s holding in Kassner, the
New York County Supreme Court has recently held that a purported accrual
provision “cannot serve to delay the accrual of the breach of contract” because an
agreement to “extend the Statute of Limitations ... made at the inception of liability
Chief Clerk John P. Asiello
April 10, 2017
Page 30
[] is unenforceable.” Bank of N.Y. Mellon, 17 N.Y.S.3d at 617 (quoting Kassner,
46 N.Y.2d at 551). Likewise, the Southern District of New York applied these
same legal principles in ruling that “parties may not contractually adopt an accrual
provision that effectively extends the statute of limitations before any claims have
accrued.” Lehman XS Trust, Series 2006-4N, 991 F. Supp. 2d at 478; U.S. Bank,
2015 WL 915444, at *5 (citing Kassner and holding that “[t]he accrual provision
cannot serve to delay the accrual of the breach of contract cause of action for
purposes of the statute of limitations”); Lehman XS Trust, Series 2006-GP2, 2014
WL 1301944, at *3 (“[T]he accrual provision cannot extend the statute of
limitations.”).
Deutsche Bank is at pains to try to distinguish Kassner on its facts. As an
initial matter, that effort fails. Deutsche Bank contends that Kassner addressed “a
different” question than presented by this matter. (DB Ltr. at 17.) But Deutsche
Bank omits from its discussion that in Kassner the Court squarely addressed “when
did the cause of action accrue within the meaning of the Statute of Limitations.”
46 N.Y.2d at 549. In pertinent part, the Court assumed a contractual provision
concerning when a cause of action for breach may “‘be … maintained’” was
Chief Clerk John P. Asiello
April 10, 2017
Page 31
intended to “postpone the accrual of the cause of action.” 46 N.Y.2d at 550, 552.
And the Court held: “The limitations provision contained in the contract cannot
serve, in this case, to extend the statutory period” because “extension agreements
made prior to the accrual of a cause of action continue to have ‘no effect.’” Id. at
549-550, 552 (quoting N.Y. Gen. Oblig. Law § 17-103(3)). Here, too, to the
extent § 9.03 of the MLPWA might be deemed to delay the accrual of a breach of
contract cause of action as Deutsche Bank contends, it has “no effect.”
More fundamentally, Deutsche Bank does not come to grips with the
provisions of the General Obligations Law that Kassner applied. Deutsche Bank’s
argument amounts to a contention that “private parties [may] establish by contract
when a cause of action for breach accrues.” (DB Ltr. at 19.) That is incorrect. Put
simply, as this Court has held, “[i]n New York, a breach of contract cause of action
accrues at the time of the breach.” Ely-Cruikshank Co. v. Bank of Montreal, 81
N.Y.2d 399, 402 (1993). And under the New York General Obligations Law,
parties cannot make a claim for that “breach” start accruing at a later date by ex
ante agreement—through imposing a discovery and demand requirement or any
other mechanism to delay onset of the statutory limitations period. Again, Kassner
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April 10, 2017
Page 32
made clear in applying the General Obligations Law that parties cannot “postpone
the accrual of the cause of action” by a contractual provision “adopted at the
inception of the contract and not after the cause of action ha[s] accrued.” 46
N.Y.2d at 552. Accordingly, even if § 9.03 of the MLPWA could be read to delay
the limitations period from running on any claim by Deutsch Bank for breach until
a demand is made, that would ex ante extend the statute of limitations in violation
of the General Obligations Law, Kassner, and the public policy considerations that
these authorities effectuate.
Proposed amicus The Bank of New York Mellon (“BNY”) criticizes the
First Department’s application of these rules for purportedly conflicting with
another First Department case, Highland Mech. Indus. v. Herbert Constr. Co., 216
A.D.2d 161 (1st Dep’t 1995), which BNY asserts allows for parties to agree to
forestall accrual of a cause of action for breach. As BNY acknowledges, that
decision was never brought to the First Department’s attention here and for good
reason. In Highland Construction, the First Department denied a motion to
dismiss on the ground that a defendant may be “estopped to plead the Statute of
Limitations” when the “plaintiff was induced by fraud, misrepresentation or
Chief Clerk John P. Asiello
April 10, 2017
Page 33
deception to refrain from filing a timely action.” Id. at 162 (internal quotation
marks omitted). The court held there was an issue of fact on this question arising
from the parties’ submissions. In light of that holding, it was not necessary to
determine when the cause of action accrued. In any event, this case is not only
from the First Department, and thus of course not binding on this Court, but it pre-
dates ACE by more than twenty years. Further still, it does not appear that any of
the principles of New York law that control the instant matter were even brought to
the attention of the First Department in Highland Construction. Certainly, the
court did not address these issues in Highland, while the First Department did
consider them carefully in both this case and ACE.
2. The General Obligations Law Does Not Permit Agreements
to Make Accrual Indefinite or to Extend a Limitation
Period Beyond Six Years
Deutsche Bank’s interpretation of § 9.03 also violates a separate prohibition
in the General Obligations Law: that agreed-upon extensions (even after the
accrual of the action) cannot be for an indefinite period of time. Parties may only
agree to extensions that are (i) finite, and (ii) for a period less than the original
limitations period (i.e., less than six years). See N.Y. Gen. Oblig. Law § 17-103(1)
Chief Clerk John P. Asiello
April 10, 2017
Page 34
(permitting an extension “within the time that would be applicable if the cause of
action had arisen at the date of the promise [to extend the limitations period], or
within such shorter time as may be provided in the promise”).
For example, in Bayridge Air Rights v. Blitman Constr. Corp., 80 N.Y.2d
777, 779 (1992), the parties signed an agreement under which the limitations
period was “extended so as to commence upon final payment to [the defendant]
from an escrow account.” The Court of Appeals held that this contractual
provision was “void and unenforceable” because it “extend[ed] the limitations
period to an indefinite date in the future in contravention of the six-year maximum
provided by the statute [for breach of contract actions].” Id. at 779-80. Reading
§ 9.03 to extend the limitations period to whenever Deutsche Bank demanded
repurchase would mean that the limitations period would run not just for another
six years, but throughout the entire life of a 30-year mortgage loan. If the parties
had contracted to allow such a belated claim, it would impermissibly extend the
limitations period to “an indefinite date in the future,” and therefore would be void.
Accordingly, even if § 9.03 could be read to extend the limitations period for
a future cause action for breach of contract, such an agreement would be
Chief Clerk John P. Asiello
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Page 35
unenforceable under well-established New York law. For this separate reason,
Deutsche Bank’s breach of contract action is time-barred and the First
Department’s Decision and Order should be affirmed.
Chief Clerk John P. Asiello
AprillO, 2017
CONCLUSION
·······················---··-····- - --- - --
tTONES DAY
The Court should overrule Deutsche Bank's objection to setting this appeal
for alternative review, pursuant to Rule 500.ll(a), and the First Department's
Decision and Order should be affirmed. The Court's recent decision in ACE and
provisions of the New York General Obligations Law that Deutsche Bank does not
address in its letter control the disposition of this appeal and mandate dismissal of
this action, as the First Department properly held.
submitted,
cc: Zachary D. Rosenbaum, Esq.
Chief Clerk John P. Asiello
AprillO, 2017
CERTIFICATE OF COMPLIANCE
,JONES DAY
In accordance with Rule 500.ll(m) of the Court of Appeals' Rules of
Practice, I certify that the total word count for the text of the body of this
submission is 6,94 7, as determined by the word-count of the word-processing
system used to prepare the submission. This word count is exclusive of the
Ho'war}tF. Sidman
AFFIRMATION OF SERVICE
I, Michael 0. Thayer, an attorney admitted to practice in the courts of the State of
New York, affirm that on April 7, 2017, I caused a true and correct copy of the foregoing letter
from Howard F. Sidman to John P. Asiello, Chief Clerk and Legal Counsel to the Court, dated
April 7, 2017, to be served upon the counsel of record in this action via overnight express mail at
the following address:
Dated: New York, New York
April 7, 2017
Zachary D. Rosenbaum
Lowenstein Sandler
1251 Avenue ofthe Americas
New York, New York 10020