SHELLEY C. CHAPMAN, UNITED STATES BANKRUPTCY JUDGE.
Before the Court is the Joint Supplemental Motion to Dismiss on Unique Issues filed by Universal American Mortgage Company, LLC ("UAMC") and Eagle Mortgage Holdings, LLC ("Eagle" and, together with UAMC, the "Defendants"), dated June 15, 2017 [Dkt. No. 453]
The Court assumes familiarity with the general background and history of the LBHI chapter 11 cases; this Decision will provide limited background facts pertinent to the Motion.
Prior to its bankruptcy, LBHI, directly or through its affiliates, including Lehman Brothers Bank, FSB ("LBB"), engaged in the purchase and sale of mortgage loans. LBHI arranged directly or through affiliates such as LBB to purchase mortgage loans from loan originators and other third parties (the "Sellers") including the Defendants; it then packaged such loans for securitization or sale to other third parties. In transactions involving UAMC, UAMC sold mortgage loans to LBB pursuant a Loan Purchase Agreement dated September 20, 2005 (as amended by an Addendum dated October 1, 2006, the "UAMC LPA") pursuant to which, among other things, UAMC contractually agreed to indemnify LBB and hold it harmless from liabilities or losses it might incur (including liabilities to third parties) as a result of breaches of the representations and warranties in the UAMC LPA.
Each of the Agreements specifically incorporates the terms and conditions of the Seller's Guide of loan administrator, Aurora Loan Services LLC (the "Seller's Guide").
Specifically, section 710 of the Seller's Guide, entitled "Repurchase Obligation" provides, in relevant part, that
Ex. L to Bialek Decl. (Seller's Guide) § 710. Section 711 of the Seller's Guide, entitled "Indemnification and Third Party Claims," provides, in relevant part, that
Ex. L to Bialek Decl. (Seller's Guide) § 711.
On September 15, 2008, LBHI and certain of its subsidiaries and affiliates (collectively, the "Debtors") filed voluntary chapter 11 cases in this Court.
On December 6, 2011, this Court confirmed the Modified Third Amended Joint Chapter 11 Plan of LBHI and Its Affiliated Debtors (the "Plan"). See Order Confirming Plan [Case No. 08-13555, Dkt. No. 23023] (the "Confirmation Order").
In March 2011, LBHI filed suit against UAMC in the United States District Court for the Southern District of Florida (Case No. 11-CV-20859) (the "Florida Action"), alleging breaches of representations and warranties regarding eight mortgage loans that UAMC sold to LBB pursuant to the UAMC LPA.
Immediately following dismissal of the Florida Action, LBHI filed seven actions in the United States District Court for the District of Colorado (the "Colorado District Court"), each relating to one loan at issue.
The Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac," and, together with Fannie Mae, the "GSEs") were two subsequent purchasers of mortgage loans from LBHI. In September 2009, both GSEs filed proofs of claim against LBHI (collectively, the "GSE Claims"), asserting breaches of representations, warranties, or covenants in numerous sale agreements for loans they had acquired from LBHI. The GSE Claims asserted claims for, among other things, "alleged indemnity/reimbursement obligations" and "indemnity claims" arising from the sale of mortgage loans to the GSEs, including mortgage loans originated by and purchased from the Defendants and ultimately sold to the GSEs.
In its review of the GSE Claims, LBHI determined that certain loans, including those brokered or sold by the Defendants, contained various defects that violated the representations, warranties, and covenants under the Agreements. LBHI has alleged that the representations, warranties, and covenants in the sale agreements between the GSEs and LBHI were co-extensive with those in the Agreements between LBB and the Defendants.
In January 2014, LBHI settled its disputes with the GSEs regarding the allowance of the GSE Claims (the "GSE Settlements"). The Court approved the GSE Settlements by Orders dated January 31, 2014 and February 19, 2014 (the "GSE Settlement Orders") [Case No. 08-13555, Dkt. Nos. 42420, 42918]. Pursuant to the Fannie Settlement, Fannie Mae received an allowed claim for $2.15 billion in LBHI Class 7 under the Plan, and, pursuant to the Freddie Settlement, Freddie Mac received a one-time cash payment of $767 million from LBHI, each in settlement of all claims and disputes between the parties.
Subsequent to entering into the GSE Settlements, the Plan Administrator identified over 11,000 loans and over 3,000 potential counterparties against which LBHI allegedly held third-party contractual claims for indemnification and/or reimbursement by virtue of the GSE Settlements.
To further facilitate its pursuit of recoveries from those Sellers with whom mediation was unsuccessful, the Plan Administrator initiated adversary proceedings in this Court, including those at issue here, against more than one hundred Sellers (including the Defendants) in tandem with six previously-filed adversary actions (collectively, the "Adversary Proceedings"). Pursuant to the CMO, the Adversary Proceedings have a central docket for court filings (Adv. Pro. No. 16-01019) and have been coordinated for administrative purposes, including scheduling motions and discovery procedures.
On December 22, 2016, LBHI filed the UAMC Complaint, initiating Adversary Proceeding No. 16-01297 against UAMC; on December 30, 2016, LBHI filed the Eagle Complaint, initiating Adversary Proceeding No. 16-01383 against Eagle and UAMC.
The CMO provides a time frame for (i) the filing of so-called threshold motions such as motions under Federal Rule of Civil Procedure 12(b) based on venue, jurisdiction, and/or failure to state a claim and (ii) objections to such motions.
The CMO also provides a time frame for the filing of so-called threshold motions to
By the Motion, the Defendants argue that the Complaints should be dismissed because the rulings in the Colorado Actions and in Universal American have preclusive effect as to LBHI's claims against the Defendants; as such, they assert that the allegations in the Complaints are barred by claim preclusion and by issue preclusion. LBHI vehemently disagrees. The Court's ruling follows.
Rule 12(b)(6) permits a bankruptcy court to dismiss an adversary proceeding if a plaintiff's complaint fails to state a claim upon which relief may be granted. See Fed. R. Civ. P. 12(b)(6). In reviewing a motion to dismiss brought under Rule 12(b)(6), a court must accept the material factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); E.E.O.C. v. Staten Island Sav. Bank, 207 F.3d 144, 148 (2d Cir. 2000).
In connection with a motion to dismiss under Rule 12(b)(6), a defendant may invoke an affirmative defense of claim preclusion when it is clear from the complaint and the matters of which a court may take judicial notice that a prior court judgment precludes the plaintiff's claims as a matter of law. Pricaspian Dev. Corp. v. Total S.A., No. 08-CV-9724, 2009 WL 4163513, at *4 (S.D.N.Y. Nov. 25, 2009), aff'd, 397 F. App'x 673 (2d Cir. 2010) (citing Candelaria v. Erickson, No. 01-CV-8594, 2007 WL 1793443, at *2 (S.D.N.Y. June 18, 2007)). Under the doctrine of claim preclusion, a final judgment forecloses "successive litigation of the very same claim, whether or not relitigation of the claim raises the same issues as the earlier suit." Taylor v. Sturgell, 553 U.S. 880, 892, 128 S.Ct. 2161, 171 L.Ed.2d 155 (2008) (citing New Hampshire v. Maine, 532 U.S. 742, 748, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001)). Federal common law
Meridian Service Metropolitan District v. Ground Water Commission (In the Matter of Water Rights), 361 P.3d 392, 398 (Colo. 2015) (citing Gallegos v. Colorado Ground Water Comm'n, 147 P.3d 20, 32 (Colo. 2006)). Claim preclusion bars not only issues actually decided, but also any issues that could have been, but were not, raised in the first proceeding. See Argus Real Estate, Inc. v. E-470 Pub. Highway Auth., 109 P.3d 604, 608 (Colo. 2005).
Assuming all factors in the claim preclusion test are satisfied, the preclusive effect is not altered by the fact that a court may later determine that a prior judgment may have been wrongly decided or may have rested on a legal principal subsequently overruled in another case. See Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981) (collecting cases). Indeed, "an `erroneous conclusion' reached by the court in the first suit does not deprive the defendants in the second action `of their right to rely upon the plea of [claim preclusion].'" Id. (citing Baltimore S.S. Co. v. Phillips, 274 U.S. 316, 325, 47 S.Ct. 600, 71 S.Ct. 1069 (1927)).
Under Colorado law, a defendant bears the burden of setting forth facts sufficient to satisfy the elements of claim preclusion or issue preclusion. Edmond v. Clements, No. 11-CV-00248, 2012 WL 2523077, at *11 (D. Colo. Jan. 19, 2012).
By the Motion, Defendants assert that the Complaints should be dismissed on the basis of claim preclusion because (i) LBHI is attempting to relitigate the same claims that were already dismissed in the Colorado Actions, which decisions were affirmed by the Tenth Circuit, and (ii) LBHI is precluded from making claims that it could have asserted in the Colorado Actions.
Defendants contend that the first, second, and fourth elements of the claim preclusion doctrine under Colorado law are easily satisfied because (i) the summary judgment decisions in the Colorado Actions were final and have been affirmed by the Tenth Circuit; (ii) LBHI is suing the same party, UAMC, under the same contract, the UAMC LPA, in connection with the same transactions, the sale of mortgage loans sold from UAMC to LBB, which loans were subsequently sold to LBHI; and (iii) the Colorado Actions involved the same parties — UAMC and LBHI.
Additionally, Defendants assert that the third element of the claim preclusion doctrine
Alternatively, Defendants contend that, even if the Court is persuaded that the claims LBHI asserted in the Colorado Actions are different from those now asserted in these Adversary Proceedings, because the claims in the Adversary Proceedings could have been brought in the Colorado Actions, they are now barred by claim preclusion. Defendants' position is that Colorado's transactional approach would deem the claims "identical" for purposes of claim preclusion because they are all tied to alleged injuries under the UAMC LPA.
By the Opposition, LBHI argues, persuasively, that claim preclusion does not apply because the third factor of the claim preclusion test — that the claims in the prior action and the instant action are identical — has not been satisfied. LBHI asserts that (i) the claims raised in the Colorado Actions involved entirely different mortgage loans, contracts, and loan originators than those asserted in Adversary Proceeding No. 16-01383, and (ii) the claims asserted in Adversary Proceeding
The Court finds that the claims asserted by LBHI in Adversary Proceeding No. 16-01297 and Adversary Proceeding No. 16-01383 are not barred by claim preclusion. While the Defendants correctly cite the proposition that, under Colorado law, a contract generally is considered to denote a single transaction for the purpose of claim preclusion, such that claims for different breaches of a contract ordinarily must be brought in the same action, see Petromanagement Corp. v. Acme-Thomas Joint Venture, 835 F.2d at 1335-36, the Tenth Circuit has explicitly noted that this is only the case "so long as the breaches antedated the original action." Id. at 1336. The Court of Appeals of Colorado has also concluded that "[c]laim preclusion does not bar a later action on claims [under the same contract] which arise after the original action is filed, but before judgment in the original action." See Loveland Essential Group, LLC v. Grommon Farms, Inc., 318 P.3d at 14.
Here, the Colorado Actions were commenced in 2013, prior to LBHI's entry into, and the Court's approval of, the GSE Settlements in 2014. LBHI's Indemnification Claims against each Defendant did not accrue until its liability to the GSEs was fixed upon entry of the GSE Settlement Orders in early 2014; accordingly, the Indemnification Claims did not arise in time for LBHI to have pled them in the Colorado Actions. As such, they are not barred by claim preclusion.
Moreover, even assuming, arguendo, that the claims asserted in the Adversary Proceedings could have been raised in the
Finally, specifically with respect to Adversary Proceeding No. 16-01383, claim preclusion also cannot apply because this Adversary Proceeding involves a different defendant and a different contract than those involved in the Colorado Actions. Eagle, a defendant in Adversary Proceeding No. 16-01383, was not a party to the Colorado Actions, and the Defendants have not asserted that Eagle was in privity with UAMC when the Colorado Actions were commenced. Further, the claims in the Colorado Actions related to loans sold by UAMC under the UAMC LPA, whereas the claims in Adversary Proceeding 16-01383 relate to loans sold by Eagle under the Eagle LPA. Accordingly, neither the requirement that the claims for relief be identical nor the requirement that the parties to the proceedings be identical (or in privity with one another) is satisfied with respect to the claims LBHI has asserted in Adversary Proceeding No. 16-01383.
For all of the foregoing reasons, the Motion to dismiss the Complaints on the basis of claim preclusion is denied.
Under the doctrine of issue preclusion, a final judgment forecloses "successive litigation of an issue of fact or law actually litigated and resolved in a valid court determination essential to the prior judgment, even if the issue recurs in the context of a different claim." Taylor v. Sturgell, 553 U.S. at 892, 128 S.Ct. 2161 (internal quotation marks omitted) (citing New Hampshire v. Maine, 532 U.S. 742, 748-49, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001)). Like the doctrine of claim preclusion, federal common law determines the preclusive effect of an earlier federal court judgment and incorporates the issue preclusion rules applied in the state in which the original rendering court sits. Taylor v. Sturgell, 553 U.S. at 891 n.4, 128 S.Ct. 2161.
Colorado law provides that issue preclusion bars relitigation of a factual
Rantz v. Kaufman, 109 P.3d at 139 (citing Bebo Construction Co. v. Mattox & O'Brien, P.C., 990 P.2d 78, 84-85 (Colo. 1999)); see also S.O.V. v. People in Interest of M.C., 914 P.2d 355, 359 (Colo. 1996) (en banc). Issue preclusion is broader than claim preclusion in one sense since it can preclude relitigation of an issue even where the claims for relief are different from those asserted in the first action. Because issue preclusion only applies to issues actually litigated, however, it is narrower than claim preclusion, which also applies to claims which could have been raised in a prior suit but were not. Rantz v. Kaufman, 109 P.3d at 138-39 (citing City and County of Denver v. Block 173 Assocs., 814 P.2d 824, 831 (Colo. 1991)); Argus Real Estate, Inc. v. E-470 Pub. Highway Auth., 109 P.3d at 608.
The central dispute with respect to the applicability of issue preclusion here pertains to whether the first prong of the test for issue preclusion has been satisfied. Stated differently, are the issues in these Adversary Proceedings identical to issues "actually litigated and necessarily adjudicated" in the Colorado Actions?
Accordingly, Defendants argue that LBHI is collaterally estopped from asserting that the Indemnification Claims in these Adversary Proceedings are timely because, in affirming the Colorado District Court's summary judgment rulings, the Tenth Circuit
LBHI argues that this Court should reject the Defendants' collateral estoppel argument because the Defendants have failed to satisfy their burden to demonstrate that Universal American should be given preclusive effect here. Specifically, LBHI asserts that the claims adjudicated in the Colorado Actions and on appeal were claims for breach of contract under section 710 of the Seller's Guide
The Court agrees. Under Colorado law, a litigant is precluded from rearguing an issue only if such issue is identical to an issue actually litigated and necessarily adjudicated in the prior proceeding. See Rantz v. Kaufman, 109 P.3d at 139; see also Bebo Const. Co. v. Mattox & O'Brien, P.C., 990 P.2d at 85-86. An issue is deemed to be "actually litigated" where (i) one of the parties, by appropriate pleading, asserts such issue through a claim or cause of action against the other party and (ii) such issue has been submitted for determination and actually determined by the adjudicatory body. Id. at 85. An issue is "necessarily adjudicated" when
Universal American, 660 F. App'x at 567); see also iFreedom Direct Corp. v. Lehman Bros. Holdings Inc., 2017 WL 2729079, at *2 (D. Utah June 23, 2017) (stating that, in Universal American, "LBHI did not assert `indemnification as a cause of action distinct from the cause of action for breach of contract,' unlike its Indemnification Claims asserted in the Bankruptcy Court"); In re RFC & RESCAP Liquidating Tr. Action, No. 13-CV-3351, 332 F.Supp.3d 1101, 1190-91, 2018 WL 3911424, at *63 (D. Minn. Aug. 15, 2018) ("In reaching its ruling, the court [in Universal American] relied on New York precedent involving the implied right of indemnity.... Here, however, Plaintiffs expressly assert a stand-alone cause of action for contractual indemnity that does not allege a refusal to indemnify or breach of the indemnification provision."). Because the Tenth Circuit found that LBHI had not asserted a cause of action for express contractual third-party indemnification in the Colorado Actions, the Court concludes that the issue of whether or not the Indemnification Claims are time-barred under the applicable statute of limitations was not actually litigated and necessarily adjudicated in Universal American.
Moreover, in Lehman Bros. Holdings v. Hometrust Mortg. Co., 530 B.R. at 610-12, this Court rejected the argument by another loan seller that the determination in certain of the Colorado Actions that LBHI's claims were barred by the statute of limitations barred LBHI from asserting its Indemnification Claims in the Adversary Proceeding filed in this Court against such loan seller.
Notably, in Lehman Bros. Holdings v. Hometrust Mortg. Co., this Court observed that none of the decisions in the Colorado Actions (two of which had been decided at the time) mentions, let alone analyzes, section 711 of the Seller's Guide or attempts to determine whether it confers a right of action for indemnification separate from "indemnification" under section 710 of the Seller's Guide for breaches of representations, warranties, and/or covenants. Lehman Bros. Holdings v. Hometrust Mortg. Co., 530 B.R. at 610. Similarly, section 711 was not discussed in Universal American, which decision barred as untimely LBHI's claims for breach of contract under section 710. The Indemnification Claims asserted by LBHI in the Complaints are contractual indemnification claims under section 711 of the Seller's Guide that did not accrue until LBHI's liability to the GSEs was fixed upon the approval of the GSE Settlements in 2014. Causes of action for express contractual indemnification have not been actually litigated and necessarily adjudicated in the prior proceedings pointed to by the Defendants — the Colorado Actions and Universal American. Accordingly, the Court finds no basis for collateral estoppel to apply here.
For all of the foregoing reasons, the Motion to dismiss the Complaints on the basis of issue preclusion is denied.
IT IS SO ORDERED.
