FILED: NEW YORK COUNTY CLERK 04/11/2013

Transcription

1 INDEX NO /2012 FILED: NEW YORK COUNTY CLERK 04/11/2013 NYSCEF DOC. NO. 32 RECEIVED NYSCEF: 04/11/2013 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK NOMURA ASSET ACCEPTANCE CORPORATION ALTERNATIVE LOAN TRUST, SERIES 2006-S3, by HSBC BANK USA, NATIONAL ASSOCIATION, in its capacity as Trustee pursuant to a Pooling and Servicing Agreement, dated as of July 1, 2006, Mot. Seq. 001 Index No /2012 (Sherwood, J.) Plaintiff, IAS Part 49 -againstoral Argument Requested NOMURA CREDIT & CAPITAL, INC., Defendant. PLAINTIFF S MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANT S MOTION TO DISMISS THE COMPLAINT Kasowitz, Benson, Torres & Friedman, LLP 1633 Broadway New York, New York (212) Attorneys for Plaintiff

2 TABLE OF CONTENTS Page TABLE OF AUTHORITIES... iii PRELIMINARY STATEMENT... 1 STATEMENT OF FACTS... 6 ARGUMENT... 9 I. II. III. The Trust s Claims Are Not Time-Barred... 9 A. CPLR 213(2) s Six-Year Statute Of Limitations Began To Run When Nomura Refused To Abide By Its Continuing Repurchase Obligation... 9 B. This Action Was Commenced Less Than Six Years After Nomura Made Its Representations And Warranties The Trust Is Entitled To A Remedy For Nomura s Breaches Of Its Repurchase Obligation And The No Untrue Statement Covenant A. The Trust Is Entitled To Damages For Nomura s Breach Of Its Repurchase Obligation B. The Trust Is Entitled To Rescission And/Or Damages For Nomura s Breach Of The No Untrue Statement Covenant The Complaint Adequately States Claims For Specific Performance Of Nomura s Repurchase Obligations A. All Defective Loans Can Be Repurchased B. The Complaint Adequately Pleads Breaches Of The Mortgage Representations The Trust Adequately Alleged Breaches Of MPLA Section 8(xiv) The Trust Adequately Alleged Breaches Of MPLA Section 8(xii) The Trust Adequately Alleged Breaches Of MPLA Section 8(xxvii) The Trust Adequately Alleged Breaches Of MLPA Section 8(xxxi[x]) The Trust Adequately Alleged Breaches Uncovered Through Loan File Review... 25

3 IV. The Trust Should Be Granted Leave To Replead If The Court Finds Any Deficiencies In Its Pleadings CONCLUSION ii

4 TABLE OF AUTHORITIES Page(s) CASES Allstate Ins. Co. v. Ace Sec. Co., Index No /2011, slip op. (Sup. Ct. N.Y. Cnty. Mar. 15, 2013)...23, 24, 25 Allstate Ins. Co. v. Countrywide Fin. Corp., 824 F. Supp. 2d 1164 (C.D. Cal. 2011)...24 Allstate Ins. Co. v. Merrill Lynch & Co., Index No /2011, slip op. (Sup. Ct. N.Y. Cnty. Mar. 15, 2013)...22, 23 Allstate Ins. Co. v. Morgan Stanley, Index No /2011, slip op. (Sup. Ct. N.Y. Cnty. Mar. 15, 2013)...23 Assured Guar. Mun. Corp. v. DB Structured Prods., Inc., 33 Misc. 3d 720 (Sup. Ct. N.Y. Cnty. 2011)...10 Assured Guar. Mun. Corp. v. Flagstar Bank, FSB, 2011 U.S. Dist. LEXIS (S.D.N.Y. Sept. 7, 2011)...19 Assured Guar. Mun. Corp. v. Flagstar Bank, FSB, 2013 U.S. Dist. LEXIS (S.D.N.Y. Feb. 5, 2013)...5, 15, 19, 23, 24 Bulova Watch Co., Inc. v. Celotex Corp., 46 N.Y.2d 606 (1979)...11 Callanan v. Keeseville, Ausable Chasm & Lake Champlain R.R. Co., 199 N.Y. 268 (1910)...18 CIFG Assur. N. Am., Inc. v. Goldman, Sachs & Co., 2012 N.Y. Misc. LEXIS 3986 (Sup. Ct. N.Y. Cnty. May 1, 2012)...6, 9, 18, 21 Colello v. Colello, 9 A.D.3d 855 (4th Dep t 2004)...13 Continental Cas. Co. v Stronghold Ins. Co., Ltd., 77 F.3d 16 (2d Cir. 1996)...12 Fed. Hous. Fin. Agency v. UBS Ams., Inc., 858 F. Supp. 2d 306 (S.D.N.Y. 2012)...23 First Games Pub. Network, Inc. v. Afonin, 2011 N.Y. Misc. LEXIS 4411 (Sup. Ct. N.Y. Cnty. Aug. 12, 2011)...9 iii

5 Fontanetta v. John Doe 1, 73 A.D.3d 78 (2d Dep t 2010)...6 Footbridge Ltd. Trust v. Countrywide Home Loans, Inc., 2010 U.S. Dist. LEXIS (S.D.N.Y. Sept. 28, 2010)...23 Gander Mt. Co. v. Islip U-Slip LLC, 2013 U.S. Dist. LEXIS (N.D.N.Y. Feb. 11, 2013)...14 Guggenheimer v. Ginzburg, 43 N.Y.2d 268 (1977)...6 Hahn Auto. Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765 (2012)...12 Health Ins. Plan v. Calvary Hosp., 2004 N.Y. Misc. LEXIS 2185 (Sup. Ct. N.Y. Cty. 2004)...18 Helprin v. Harcourt, Inc., 277 F. Supp. 2d 327 (S.D.N.Y. 2003)...17, 18 In re Bear Stearns Mortg. Pass-Through Certificates Litig., 851 F. Supp. 2d 746 (S.D.N.Y. 2012)...17, 23 Inter-Community Mem l Hosp. of Newfane, Inc. v. Hamilton Wharton Grp., Inc., 93 A.D.3d 1176 (4th Dep t 2012)...11 Lana & Edward s Realty Corp. v. Katz/Weinstein P ship, 2010 N.Y. Misc. LEXIS 548 (Sup. Ct. Kings Cnty. Mar. 17, 2010)...14 LaSalle Bank Nat l Ass n v. CAPCO Am. Securitization Corp., 2005 U.S. Dist. LEXIS (S.D.N.Y. Nov. 10, 2005)...20 LaSalle Bank Nat. Ass n v. Lehman Bros. Holdings, Inc., 237 F. Supp. 2d 618 (D. Md. 2002)...15 Lehman Bros. Holdings, Inc. v. Evergreen Moneysource Mortg. Co., 793 F. Supp. 2d 1189 (W.D. Wa. 2011)...12, 14 Lehman Bros. Holdings, Inc. v. Key Fin. Corp., 2011 U.S. Dist. LEXIS (M.D. Fla. Mar. 31, 2011)...12 Lehman Bros. Holdings, Inc. v. Laureate Realty Servs., 2007 U.S. Dist. LEXIS (S.D. Ind. Sept. 28, 2007)...16 Lehman Bros. Holdings, Inc. v. Nat l Bank of Ark., 2012 U.S. Dist. LEXIS (E.D. Ark. June 25, 2012)...11 iv

6 Lehman Bros. Holdings, Inc. v. PMC Bancorp, 2013 U.S. Dist. LEXIS (C.D. Cal. Mar. 8, 2013)...12 Lehman Bros. Holdings, Inc. v. Royal Pac. Funding Corp., 2011 U.S. Dist. LEXIS (C.D. Cal. Oct. 20, 2011)...12 Leon v. Martinez, 84 N.Y.2d 83, 88 (1994)...25 LMT Capital Mgt., LLC v. Gerardi, 97 A.D.3d 546 (2d Dep t 2012)...20 Lusker v. Tannen, 90 A.D.2d 118 (1st Dep t 1982)...20 Manns v. Norstar Bldg. Corp., 4 A.D.3d 799 (4th Dep t 2004)...13 Marathon Enters., Inc. v. Feinberg, 595 F. Supp. 368 (S.D.N.Y. 1984)...14 Mass. Mut. Life Ins. Co. v. Residential Funding Co., LLC, 843 F. Supp. 2d 191 (D. Mass. 2012)...23, 24 MASTR Asset Backed Sec. Trust 2006-HE3 v. WMC Mortg. Corp., 2012 U.S. Dist. LEXIS (D. Minn. Oct. 1, 2012)...20 MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 87 A.D.3d 287 (1st Dep t 2011)...24 MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 2013 N.Y. App. Div. LEXIS 2107 (1st Dep t Apr. 2, 2013)...10 Pavarini McGovern, LLC v. Tag Ct. Sq., LLC, 62 A.D.3d 680, 878 N.Y.S.2d 419 (2d Dep t 2009)...20 Resolution Trust Corp. v. Key Fin. Servs., Inc., 280 F.3d 12 (1st Cir. 2002)...11, 20 Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 60 A.D.3d 61 (1st Dep t 2008)...17 RR Chester, LLC v. Arlington Bldg. Corp., 22 A.D.3d 652, 803 N.Y.S.2d 100 (2d Dep t 2005)...17 Sokol v. Leader, 74 A.D.3d 1180 (2d Dep t 2010)...6 v

7 Stalis v. Sugar Creek Stores, Inc., 295 A.D.2d 939 (4th Dep t 2002)...11 State Farm Mut. Auto. Ins. Co. v. Farescal, 2009 N.Y. Misc. LEXIS 1161 (Sup. Ct. Queens Cty. May 13, 2009)...18 Structured Mortg. Trust v. Daiwa Fin. Corp., 2003 U.S. Dist. LEXIS 2677 (S.D.N.Y. Feb. 25, 2003)...12, 14 Syncora Guar., Inc. v. EMC Mortg. Corp., 2011 U.S. Dist. LEXIS (S.D.N.Y. Mar. 25, 2011)...17 Trust for the Certificate Holders of the Merrill Lynch Mortg. Pass-Through Certificates Series 1999-C1 v. Love Funding Corp., 736 F. Supp. 2d 716 (S.D.N.Y. 2010)...20 U.S. Bank, N.A. v. GreenPoint Mortg. Funding, Inc., 2010 N.Y. Misc. LEXIS 471 (Sup. Ct. N.Y. Cnty. Mar. 3, 2010)...17 U.S. Postal Serv. v. Phelps Dodge Refining Corp., 950 F. Supp. 504 (E.D.N.Y. 1997)...18 Weill v. East Sunset Park Realty, LLC, 955 N.Y.S.2d 402 (2d Dep t 2012)...6 Wells Fargo Bank, N.A. v. Bank of Am., N.A., 2013 U.S. Dist. LEXIS (S.D.N.Y. Mar. 28, 2013)... 5, 15, 19-20, 20 Yatter v. William Morris Agency, Inc., 256 A.D.2d 260 (1st Dep t 1998)...14 Young v. Woodcrest Club, 188 Misc. 2d 706 (Sup. Ct. N.Y. Cnty. 2001)...14 STATUTES CPLR 213(2)...2 CPLR 3025(b)...25 CPLR , 5, 6 OTHER AUTHORITIES 31 WILLISTON ON CONTRACTS 79:22 (4th Ed. 2012)...11 Bank of America Corp., Annual Report for fiscal year ended Dec. 31, 2009 (Form 10-K) (filed Feb. 26, 2010)...10 vi

8 Citigroup Inc., Annual Report for fiscal year ended Dec. 31, 2010 (Form 10-K) (filed Feb. 25, 2011)...10 Press Release, Department of Justice, Office of Public Affairs, Residential Mortgage-Backed Securities Working Group Members Announce First Legal Action (Oct. 2, 2012)...6 Standard & Poor s Ratings Services, Standard & Poor s Ratings Services 17g-7 Disclosure Report, CSMC Trust 2012-CIM3, dated Nov. 30, Wells Fargo & Co., Quarterly Report for the period ended Sept. 30, 2010 (Form 10-Q) (filed Nov. 5, 2010)...10 vii

9 Plaintiff Nomura Asset Acceptance Corporation Alternative Loan Trust, Series 2006-S3 (the Trust ), by HSBC Bank USA, National Association, solely in its capacity as trustee (the Trustee ) for the holders of Mortgage Pass-Through Certificates, Series 2006-S3 (the Certificates ), issued by the Trust pursuant to a Pooling and Servicing Agreement ( PSA ) and a Mortgage Loan Purchase Agreement ( MLPA ), both of which closed on July 28, 2006 (together, the Agreements ), submits this memorandum of law in opposition to the motion of defendant Nomura Credit & Capital, Inc. ( Nomura ) to dismiss the Trust s complaint ( Complaint or Cmplt. ) pursuant to CPLR 3211(a)(1), (a)(5) and (a)(7).1 PRELIMINARY STATEMENT This action seeks to hold Nomura accountable for its unambiguous contractual obligation to repurchase, or otherwise make the Trust whole with respect to, all defective residential mortgage loans (the Defective Loans ) that Nomura sold to the Trust. Nomura s pervasive breaches of the Agreements, and the poor quality of the Defective Loans, have caused losses to the Trust s investors (the Certificateholders ) of more than $140 million to date. Disregarding New York s liberal pleading requirements and ignoring the unambiguous language of the Agreements, Nomura moves to dismiss the Complaint. Nomura s motion is meritless. Nomura, by its motion, seeks to evade its most basic, unequivocal promises regarding the mortgage loans (the Loans ) it sold to the Trust. Among other things, Nomura: 1 made numerous, specific representations and warranties to all of the Certificateholders regarding the characteristics and quality of the Loans (the Mortgage Representations ) it sold to the Trust; promised the Certificateholders that no written statements, reports and other documents Nomura delivered to the Trust regarding the Loans contain[ed] any untrue statement of a material fact (the No Untrue Statement Covenant ); and Submitted herewith in opposition to Nomura s motion is the Affirmation of Michael M. Fay, sworn to on April 11, 2013 ( Fay Aff. or Fay Affirmation ).

10 agreed upon discovery of a breach of a Mortgage Representation by it or any other party to cure such breach or to repurchase the relevant Defective Loan where cure was impossible. These contractual promises were fundamental to the securitization because the Certificateholders had no practical or contractual means to verify the quality and characteristics of the 4,600-plus Loans before investing in the Certificates. As set forth in the Complaint, investigations of over 2,000 of the Loans reveal that a stunningly high percentage over 86 percent are Defective Loans, and that the faulty documentation, including the Mortgage Loan Schedule (the MLS ),2 that Nomura provided to the Trust regarding these Defective Loans breached Nomura s No Untrue Statement Covenant. The Trustee has repeatedly requested that Nomura abide by its contractual obligation to repurchase Defective Loans, but Nomura has steadfastly refused to do so. Accordingly, the Trustee had no other recourse than to commence this action to seek redress for the significant and ongoing losses suffered by the Trust. In its motion to dismiss ( Def. Mem. ), Nomura first argues that the Trust s claims are time-barred by CPLR 213(2) s six-year statute of limitations. (Def. Mem. at 10-15) However, Nomura s attempt to impose a time-limit on its obligation to cure or repurchase Defective Loans fails as a matter of law. The PSA (Section 2.03) and MLPA (Section 9) explicitly provide that upon discovery of a breach of a Mortgage Representation, Nomura has a continuing obligation lasting throughout the life of the Trust to cure the breach or repurchase the Defective Loan. This 2 The MLS is [t]he list of Mortgage Loans transferred to the Trustee as part of the Trust Fund. (PSA 1.01) The MLS was the most critical part of the transaction. It identified the Loans being sold under the MLPA, and gave the purchaser of the Loans detailed information about the characteristics of those Loans, which serve as the sole source of income to pay the Certificateholders. The MLS was also provided to the credit rating agencies, which used it to determine the ratings of the securities that the Trust issued to investors. Those ratings were directly tied to the price that Nomura charged for the Certificates and thus, were a direct driver of the profit that Nomura made from each transaction. The MLS was also provided to the Certificateholders and was their only avenue to assess the overall quality of the Loans. Any material inaccuracy in many of the MLS s data fields (e.g., borrower Debt-ToIncome ( DTI ) ratios, combined-loan-to-values ( CLTVs ) and occupancy status) would have impacted the rating agencies assessment and the investors views regarding the value of the Certificates. 2

11 continuing obligation to cure or repurchase is fundamental to the parties bargain, as only Nomura knew the quality of the up-to-30-year Loans it sold to the Trust. New York law recognizes that, in the presence of a continuing obligation, Section 213(2) s six-year limitations period commences upon each breach of that obligation, not the execution of the underlying agreements. Here, the six-year limitations period began anew each time Nomura rejected the Trust s demand to repurchase the identified Defective Loans. The parties bargain, sanctioned by New York law (and recognized by some of the most-active sponsors of similar transactions), should not now be upset by the Court simply because Nomura does not want to follow through on its contractual commitment. (Infra at 9-13) Moreover, Nomura s argument that the six-year limitations period lapsed on July 1, 2012, runs contrary to the unambiguous language of the Agreements, which states that the Mortgage Representations were made as of the Closing Date defined as July 28, (PSA 2.03(b); MLPA 8). This action was commenced on July 27, 2012 within six years from the Closing Date by the filing of a summons with notice ( SWN ) by the Trustee. Nomura ignores this fact and instead, citing inapposite cases and no textual support, asserts that the Trust s claims accrued on July 1, 2006 because the Mortgage Representations were somehow made effective on that date long before the PSA and MLPA closed. (Def. Mem. at 5, 9-12) Nomura thus posits that the Mortgage Representations were enforceable even before: (a) they were made effective by Nomura; (b) the contents of the Loan pool was finally determined; (c) Nomura conveyed the Loans to the Trust; (d) Nomura was compensated for the sale of the Loans; and, most importantly, (e) the PSA was executed. This is nonsensical and unsupported by the law or the Agreements. (Infra at 13-14) 3

12 Second, Nomura argues that the Trust s second cause of action should be dismissed because the Agreements preclude a damages award for Nomura s breach of its repurchase obligation. However, (a) neither Agreement limits the Trust s remedies when Nomura fails to honor its obligation to repurchase Defective Loans; (b) under New York law, damages are a proper measure of a seller s obligations under loan repurchase provisions; and (c) a breach of that repurchase obligation constitutes an independent breach of contract, entitling the Trust to pursue general contract remedies. (Infra at 15) Third, Nomura argues that its No Untrue Statement Covenant which protects the Trust against the submission of false documentation pertaining to the Loans should, in effect, be ignored by this Court, and the Trustee s third and fourth causes of action for rescission and damages for breaches of the No Untrue Statement Covenant should be dismissed. However, Nomura does not dispute that it delivered the MLS, among other documents to the Trust, or that the MLS contains numerous untrue and misleading statements. Instead, Nomura baselessly contends that the sole remedy provision which applies exclusively to the Mortgage Representations set forth in Section 8 of the MLPA and Section 2.03(b)(viii)-(x) of the PSA somehow limits the Trust s remedies for breaches of the No Untrue Statement Covenant set forth in Section 7(v) of the MLPA. This argument ignores basic rules of contract interpretation and directly contradicts case law from this Court. (Infra at 15-18) Fourth, Nomura challenges the Trust s first cause of action for specific performance, asserting that it need not repurchase a hypothetical class of Loans that may have defaulted and thus been written down for accounting purposes or liquidated. However, recent New York cases have flatly rejected this self-serving contention: [t]he parties bargained for the purchase price calculation as defined in the PSA, and [defendant s] contention that this calculation applies only 4

13 where repurchase is possible is unavailing in light of the case law. Wells Fargo Bank, N.A. v. Bank of Am., N.A., 2013 U.S. Dist. LEXIS 44955, at *39 (S.D.N.Y. Mar. 28, 2013) ( Wells Fargo ) (emphasis in original). See also Assured Guar. Mun. Corp. v. Flagstar Bank, FSB, 2013 U.S. Dist. LEXIS 16682, at * (S.D.N.Y. Feb. 5, 2013) ( Flagstar ). Nomura could have bargained for the limited repurchase obligation it now attempts to read into the Agreements, but this securitization would not have closed if Nomura had been allowed to dump inferior Loans into the Trust without recourse. Further, Nomura was on notice of breaches of the Mortgage Representations at the Trust s inception and was thus obligated to notify the Trustee of the Defective Loans long before any Loan was written down or liquidated. (Infra at 18-21) Fifth, Nomura posits arguments concerning the sufficiency of the Trust s repurchase claims, ignoring the fact that this is a breach of contract action and, thus, the Trust s pleadings need only provide basic information regarding the contractual provisions breached and the nature of such breaches. The Complaint clearly exceeds these minimal pleading standards. Moreover, Nomura concedes that it received breach notices from the Trust (Fay Aff. Exs. A-C), which were explicitly incorporated into the Complaint and provide detailed information identifying Defective Loans and the extent of Mortgage Representations breached. Nomura cannot deny that it is on notice of and able to defend against the Trust s claims. (Infra at 21-25) Finally, in an effort to distract the Court from the underlying merits of the Trust s action, Nomura submits a number of exhibits attempting to, among other things, disparage the Certificateholders. This sideshow is a waste of the Court s time, and, what is more, the vast majority of Nomura s exhibits on this point are not even documentary evidence within the meaning of CPLR 3211(a)(1) or (a)(7). 3 3 To be considered documentary [under CPLR 3211(a)(1)], evidence must be unambiguous and of undisputed authenticity. Typically that means judicial records such as judgments and orders, as well as documents reflecting 5

14 Nomura s motion to dismiss is meritless and should be denied in its entirety. STATEMENT OF FACTS This case involves one of many residential mortgage-backed securitizations ( RMBS ) that the country s largest banks, including Nomura, assembled during the run-up to the financial crisis in ever-increasing and incredibly high volumes to generate enormous revenue. Indeed, the pervasive breaches throughout the Loans make clear that Nomura in a race to take advantage of the housing bubble it helped to perpetuate sought to turn a quick profit by putting quantity over quality of the mortgage loans it packaged and sold. Nomura s securitization of numerous Defective Loans accounts for the poor performance of the Certificates, as illustrated by the RMBS working group created by President Obama in the Department of Justice, among other government investigations. See Press Release, Department of Justice, Office of Public Affairs, Residential Mortgage-Backed Securities Working Group Members Announce First Legal Action (Oct. 2, 2012) ( Here, Nomura, as Seller, aggregated and securitized a pool of 4,653 second lien mortgage loans and transferred those loans to the Trust using its affiliate Nomura Asset Acceptance Corporation ( NAAC or the Depositor ) as an intermediary. The transfer took place on July 28, 2006, the same date that the Trust issued the Certificates, and over $252 million in proceeds from the sale were passed on to Nomura. (Cmplt. 1, 23-24) out-of-court transactions such as contracts, releases, deeds, wills, mortgages and any other papers, the contents of which are essentially undeniable. CIFG Assur. N. Am., Inc. v. Goldman, Sachs & Co., 2012 N.Y. Misc. LEXIS 3986, at *12-13 (Sup. Ct. N.Y. Cnty. May 1, 2012) (Sherwood, J.) ( CIFG ) (quoting Fontanetta v. John Doe 1, 73 A.D.3d 78, (2d Dep t 2010)). The Craner Affirmation itself and Exs. B, C, E, P and Q all contain summary records and/or subjective opinions that are subject to dispute, and thus, do not do not constitute documentary evidence. See Fontanetta, 73 A.D.3d at These exhibits are also improperly submitted per CPLR 3211(a)(7). See Weill v. East Sunset Park Realty, LLC, 955 N.Y.S.2d 402, 403 (2d Dep t 2012) (quoting Sokol v. Leader, 74 A.D.3d 1180, 1881 (2d Dep t 2010) and Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275 (1977)). 6

15 Nomura purchased the Loans from third-party originators. During origination, it was incumbent upon the third-party originators to evaluate the creditworthiness of borrowers and the value of the homes securing the Loans. In addition, Nomura conducted independent due diligence of the third-party originators and the Loans it purchased from them. Nomura thus possessed significantly more information about the quality and characteristics of the Loans than the Trust or the Certificateholders (id. 28), and was therefore on notice of breaches of the Mortgage Representations prior to and through the closing of the Agreements. Indeed, over half of all Loans securitized by Nomura were rejected by Nomura s outside due diligence firm as non-conforming with third-party originator guidelines. (Id. 67) Nevertheless, Nomura still assured investors that the Loans in this Trust were originated in accordance with such originators underwriting guidelines. (Cmplt. Ex. C (Prospectus Supplement) at 37) In fact, because no Certificateholder was able to conduct loan-by-loan due diligence before purchasing the Certificates, Nomura guaranteed the quality of the Loans by, among other things: (a) making specific Mortgage Representations regarding the quality of each Loan; (b) promising, through the No Untrue Statement Covenant, that the vast amount of Loan documentation (e.g., the MLS and the contents of the Loan files) provided to the Trust was true and complete; and (c) accepting the risk of Defective Loans in the Trust by agreeing, upon discovery by any party, to repurchase any Defective Loans if cure proved impossible. Had Nomura not warranted that the Loans met certain quality standards and agreed to repurchase them in the event they did not, this securitization would not have been consummated as investors were unable to independently evaluate the quality of the collateral. (Cmplt ) 7

16 There are two types of representations and warranties at issue here. First, Nomura made a collection of Seller representations and warranties in Section 7 of the MLPA that included the broad promise set forth in the No Untrue Statement Covenant (Cmplt. 35, MLPA 7(v)):... The written statements, reports and other documents prepared and furnished or to be prepared and furnished by the Seller pursuant to this Agreement or in connection with the transactions contemplated hereby taken in the aggregate do not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements contained therein not misleading. Second, Nomura made the Mortgage Representations in Section 8 of the MLPA and Section 2.03(b)(viii), (ix) and (x) of the PSA regarding the quality and characteristics of each of the Loans that it sold to the Trust. (Cmplt ) Section 9(a) of the MLPA and Section 2.03(c) of the PSA set forth the remedial procedure in the event the Mortgage Representations are breached, reflecting the bargained-for placement on Nomura of the risk of loss for Defective Loans throughout the lifetime of the Trust. (Cmplt. 29) Further, neither Agreement limits the remedies for Nomura s breach of the No Untrue Statement Covenant (MLPA 7(v)), and therefore, any such breach permits the Trust to seek all remedies afforded by law or equity. (MLPA 13) After discovering pervasive material and adverse breaches of the Mortgage Representations in at least 1,930 Loans, as well as widespread misrepresentations in the documents provided by Nomura to the Trust in connection with the Securitization (such as the Loan files and MLS), the Trust notified Nomura of these breaches with letters beginning on April 27, 2012 (the Breach Notices, incorporated by reference in the Complaint and attached hereto as Fay Aff. Exs. A-C). Despite the Breach Notices demands that Nomura cure or repurchase the Defective Loans, Nomura has refused to cure or repurchase a single Defective Loan. The Trust commenced the instant action on July 27, 2012 to enforce Nomura s contractual obligations by the filing of the SWN (Doc. No. 1), which was then served on 8

17 November 26, 2012 (Doc. No. 4). Nomura appeared and demanded the Complaint on December 26, 2012 (Doc. No. 5). The Complaint was filed and served on January 15, 2013 (Doc. No. 6). ARGUMENT In ruling on this motion to dismiss, the court is required to afford the pleadings a liberal construction, take the allegations of the complaint as true and provide plaintiff the benefit of every possible inference. Whether a plaintiff can ultimately establish its allegations is not part of the calculus in determining a motion to dismiss. CIFG, 2012 N.Y. Misc. LEXIS 3986, at *1314 (citations and quotations omitted). To state a breach of contract cause of action, a plaintiff need only allege: (1) the existence of a valid contract; (2) non-performance by the defendant; (3) performance by the plaintiff; and (4) damage to the plaintiff as a result of defendant s nonperformance. First Games Pub. Network, Inc. v. Afonin, 2011 N.Y. Misc. LEXIS 4411, at *6 (Sup. Ct. N.Y. Cnty. Aug. 12, 2011) (Bransten, J.) (citation omitted). I. The Trust s Claims Are Not Time-Barred Despite Nomura s protestations to the contrary (Def. Mem. at 9-12), its obligation to repurchase Defective Loans is continuing and exists throughout the life of the Trust and the Agreements. Thus, each refusal by Nomura to abide by its repurchase obligation is an independent breach of this continuing obligation and begins the running of the statute of limitations anew. Further, and in any event, this action was commenced within six years of the Closing Date of the Trust. Accordingly, the Trust s claims are timely. A. CPLR 213(2) s Six-Year Statute Of Limitations Began To Run When Nomura Refused To Abide By Its Continuing Repurchase Obligation Nomura first contends that the Trust s claims are time-barred because a claim for breach of a contractual representation accrues on the date when the representation is made. (Def. Mem. at 10) However, the parties negotiated for and agreed to the Mortgage Representations 9

18 and the associated repurchase obligation, which arises when any party discovers a breach of the Mortgage Representations. See, e.g., Assured Guar. Mun. Corp. v. DB Structured Prods., Inc., 33 Misc. 3d 720, (Sup. Ct. N.Y. Cnty. 2011) (Kornreich, J.) (explaining that cure-orrepurchase remed[ies] operate[] in three steps: Step 1: Discovery Step 2: Cure Step 3: Repurchase. ) (emphasis added). Indeed, Section 2.03(c) of the PSA and Section 9(a) of the MLPA clearly set forth the procedure for submitting Defective Loans to Nomura and Nomura s corresponding obligation to repurchase such Defective Loans. Neither section limits Nomura s cure or repurchase obligation to a mere six years from the inception of the Trust, which remains active for 30 years. 4 Had the parties intended such a limitation, they could have specified as much in the Agreements, as they did by explicitly including a two-year limitation on Nomura s option to substitute a Defective Loan in Section 2.03(c) of the PSA. 5 MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 2013 N.Y. App. Div. LEXIS 2107, at *5 (1st Dep t Apr. 2, 2013) ( Had these very sophisticated parties desired to have [a certain limitation in] the repurchase agreement, they certainly could have included such language in the contracts. They did not do so, and this Court will not do so now ). 4 In fact, some recent RMBS documents explicitly sunset the sponsor s repurchase obligation. See, e.g., Standard & Poor s Ratings Services, Standard & Poor s Ratings Services 17g-7 Disclosure Report, CSMC Trust 2012-CIM3, dated Nov. 30, 2012, at 50 ( 5 Some of the most-active sponsors of RMBS acknowledge that repurchase obligations are designed to run for the lifetime of the trust See, e.g., Citigroup Inc., Annual Report for fiscal year ended Dec. 31, 2010 (Form 10-K), at 90, 145 (filed Feb. 25, 2011) ( Citi s representations and warranties are generally not subject to stated limits in amount or time of coverage. ) ( Bank of America Corp., Annual Report for fiscal year ended Dec. 31, 2009 (Form 10-K), at 144 (filed Feb. 26, 2010) ( [Bank of America s] representations and warranties are generally not subject to stated limits and extend over the life of the loan. ) ( Wells Fargo & Co., Quarterly Report for the period ended Sept. 30, 2010 (Form 10-Q), at 38 (filed Nov. 5, 2010) ( investors may demand repurchase at any time ) ( 10

19 Nomura s ongoing repurchase obligation is wholly consistent with New York law on the accrual of limitations periods for breaches of continuing cure obligations. 6 In a directly analogous case, the New York Court of Appeals considered the timeliness of a suit brought to recover damages for a roofing materials supplier s failure to live up to its express promise to repair its so-called bonded roof for a period of 20 years from the date of sale. Bulova Watch Co., Inc. v. Celotex Corp., 46 N.Y.2d 606, 608 (1979). The Bulova court held that a cause of action accrues upon each breach of that undertaking which occurs within the 20-year period and that the Statute of Limitations runs after six years from the date when the particular breach for which any such suit is brought has taken place. Id. at 608. See also 31 WILLISTON ON CONTRACTS 79:22 (4th Ed. 2012). As in Bulova, Nomura did not merely guarantee the condition or performance of the Loans, it agreed to perform a service i.e., to cure or repurchase Defective Loans for duration of the Loans lifetimes. 46 N.Y.2d at 612. As such, the Trust s claims must accrue in accordance with the Court of Appeals decision in Bulova. Not surprisingly, the reasoning of the Court of Appeals in Bulova has been applied in the RMBS context. See Lehman Bros. Holdings, Inc. v. Nat l Bank of Ark., 2012 U.S. Dist. LEXIS 87265, at *12-13 (E.D. Ark. June 25, 2012) (where, as here, an RMBS plaintiff could not have sued on [Defendant s] independent breach [of its repurchase obligation] before the plaintiff demanded repurchase of the loan, the statute of limitations for a claim alleging a loan seller s breach of its repurchase obligation begins to run when the plaintiff first demanded repurchase ) (applying New York law) (emphasis added). 7 6 See Inter-Community Mem l Hosp. of Newfane, Inc. v. Hamilton Wharton Grp., Inc., 93 A.D.3d 1176, 1178 (4th Dep t 2012) ( [W]here a contract provides for continuing performance over a period of time, each breach may begin the running of the statute [of limitations] anew such that accrual occurs continuously ) (quotations omitted and alterations in original); Stalis v. Sugar Creek Stores, Inc., 295 A.D.2d 939, (4th Dep t 2002) (same). 7 See also Resolution Trust Corp. v. Key Fin. Servs., Inc., 280 F.3d 12, 18 (1st Cir. 2002) (under New York law, seller s failure to repurchase a breaching loan constituted an independent breach of the loan purchase agreement); 11

20 Nomura is misguided in relying on Lehman Bros. Holdings, Inc. v. Evergreen Moneysource Mortg. Co., 793 F. Supp. 2d 1189 (W.D. Wa. 2011) ( Evergreen ), and Structured Mortg. Trust v. Daiwa Fin. Corp., 2003 U.S. Dist. LEXIS 2677 (S.D.N.Y. Feb. 25, 2003) ( Daiwa ), as each is inconsistent with controlling authority from the New York Court of Appeals (supra) and inapposite. 8 Unlike the Trust s claims, the repurchase claims in Evergreen and Daiwa were abandoned or simply never pursued. See Evergreen, 793 F. Supp. 2d at 1193; Daiwa, 2003 U.S. Dist. LEXIS 2677, at *2-3. Further, the relevant agreements are different: whereas Nomura s repurchase obligation is triggered [u]pon discovery of a breach, the corresponding provisions in the Evergreen and Daiwa agreements did not have any such discovery requirement. In Evergreen, the contracts obligated defendant to repurchase a loan upon the exercise of the purchaser s option [i]n the event of a breach. (Fay Aff. Ex. D 710). And in Daiwa, the remedy in connection with a breach was payable by [defendant] promptly upon demand... (Fay Aff. Ex. E 2.03(e)). Indeed, these very provisions determined the outcome of the limitations analysis in those cases. See Evergreen, 793 F. Supp. 2d at 1194 ( Evergreen s duty under [the relevant provisions] to either repurchase mortgage loans or indemnify for losses incurred... is only triggered by a breach of any of the representations, warranties, or covenants... ); Daiwa, 2003 U.S. Dist. LEXIS 2677, at *6 ( There is no language in the Pooling Agreement to support plaintiffs position that they were barred until March 1999 Lehman Bros. Holdings, Inc. v. PMC Bancorp, 2013 U.S. Dist. LEXIS 39594, at *11 (C.D. Cal. Mar. 8, 2013) (same); Lehman Bros. Holdings, Inc. v. Royal Pac. Funding Corp., 2011 U.S. Dist. LEXIS , at *13 (C.D. Cal. Oct. 20, 2011) (same); Lehman Bros. Holdings, Inc. v. Key Fin. Corp., 2011 U.S. Dist. LEXIS 37083, at *29 (M.D. Fla. Mar. 31, 2011) (same). 8 Nomura s reliance on Hahn Auto. Warehouse, Inc. v. American Zurich Ins. Co. is also misplaced, as that case stands for the unremarkable proposition that a claim accrues when a contracting party has a right to demand payment, not when the demand is actually made. 18 N.Y.3d 765, 771 (2012). Under the Agreements, payment can be demanded after Defective Loans are discovered and Nomura fails to cure the breach, so these claims could not have accrued on July 1, See Continental Cas. Co. v Stronghold Ins. Co., Ltd., 77 F.3d 16, 22 (2d Cir. 1996) (holding that plaintiff s claim did not accrue until it provided notice to the defendant and demanded indemnity because demand was an essential element of plaintiff s claim). 12

21 from making [their repurchase] demand ). Given the express language of the Agreements triggering the Trust s claim [u]pon discovery, neither of Nomura s purported authorities have any value here. B. This Action Was Commenced Less Than Six Years After Nomura Made Its Representations And Warranties In any event, this action was timely commenced on July 27, 2012, within six years of the Trust s July 28, 2006 Closing Date. Recognizing this inescapable fact, Nomura attempts to fashion a basis for dismissal out of the fact that the Agreements were dated as of July 1, 2006, arguing that the representations were made and the Trust s claims purportedly accrued on that date. (Def. Mem. at 9-12). However, July 1, 2006 was merely the cut-off date for determining the principal balance and price of the Loans sold to the Trust.9 (PSA 1.01, MLPA 1) The relevant date according to the plain and unambiguous language of the Agreements is the July 28, 2006 Closing Date (PSA 1.01; MLPA 1), when the Mortgage Representations were made (PSA 2.03(b); MLPA 8). The Closing Date is also when: (a) Nomura and NAAC the Nomura affiliate which, as Depositor, sold the Loans to the Trust executed the PSA; and (b) the Loans and the Loan files were transferred to the Trust. (See PSA, Notary Certifications of NG Evan (for John Graham of NAAC and Jeane Leschak of Nomura)); PSA 2.01 (NAAC, as Depositor, with the execution and delivery of the PSA, transferred the Trust Fund, including the Loans and related files, to the Trust); see also Cmplt. 24) In fact, Nomura itself admitted in its marketing materials that the Loan pool would not be certain or complete until the Closing Date. (See Cmplt., Ex. C at 27) It is thus inconceivable how the 9 Manns v. Norstar Bldg. Corp., 4 A.D.3d 799, 800 (4th Dep t 2004) and Colello v. Colello, 9 A.D.3d 855 (4th Dep t 2004), on which Nomura relies (Def. Mem. at 10 n.5), are inapposite. Neither decision addressed when a cause of action for breach of contract accrues and, instead, stand for the unremarkable proposition that contractual terms may be retroactively effective from the date of execution if the contract expressly so provides. Manns, 4 A.D.3d at 800; Colello, 9 A.D.3d at 857. Here, the PSA expressly provides that the Mortgage Representations were made as of July 28, 2006, when Nomura transferred the Loans to the Trust and executed the PSA. 13

22 Trustee could have reviewed the Loan files and brought a claim for a breach of the Mortgage Representations before the Loan pool was complete, the parties executed the PSA and the Trust received the Loans and Loan files from Nomura. See Young v. Woodcrest Club, 188 Misc. 2d 706, 708 (Sup. Ct. N.Y. Cnty. 2001) ( The rule... is that the right of action does not accrue upon a contract until it is executed or payment thereunder becomes due by its terms ). Nonetheless, Nomura suggests that the as of date, rather than the execution date, of an agreement is controlling with respect to the running of the statute of limitations. However, Nomura s position is undermined by its own cases, which hold that the limitations period runs from the date a contract is executed and/or the date payment is made for purchased loans. See Lana & Edward s Realty Corp. v. Katz/Weinstein P ship, 2010 N.Y. Misc. LEXIS 548, at *1112 (Sup. Ct. Kings Cnty. Mar. 17, 2010) (plaintiffs claim accrued at the time of execution of the contract ); Gander Mt. Co. v. Islip U-Slip LLC, 2013 U.S. Dist. LEXIS 17731, at *47 (N.D.N.Y. Feb. 11, 2013) (statute of limitations began to run when the [l]ease was executed ); Daiwa, 2003 U.S. Dist. LEXIS 2677, at *4; Evergreen, 793 F. Supp. 2d at The Agreements as of date has no bearing on the Trust s claims, which accrued no earlier than July 28, Accordingly, the Trust s claims are timely.10 II. The Trust Is Entitled To A Remedy For Nomura s Breaches Of Its Repurchase Obligation And The No Untrue Statement Covenant Nomura next asserts that the Loan-by-Loan repurchase procedure delineated in Section 9(a) of the MLPA and Section 2.03(c) of the PSA is the only mechanism by which the Trust may obtain any relief from Nomura. (Def. Mem. at 13-17) Nomura is mistaken. 10 See also Yatter v. William Morris Agency, Inc., 256 A.D.2d 260, 261 (1st Dep t 1998) (finding cause of action accrued on the date of the closing of the transaction ); Marathon Enters., Inc. v. Feinberg, 595 F. Supp. 368, 372 (S.D.N.Y. 1984) (plaintiff s claim for breach of contract accrued at the time of the execution of the contract... when the claim first could have been sued upon ) (citations and quotations omitted). 14

23 A. The Trust Is Entitled To Damages For Nomura s Breach Of Its Repurchase Obligation Nomura first contends that the Trust s claim for damages arising from Nomura s breach of its repurchase obligation should be dismissed because Section 9(c) of the MLPA and Section 2.03(c) of the PSA limit the Trust s remedies to cure or repurchase for breaches of the Mortgage Representations. (Def. Mem. at 13-14). However, two recent New York decisions confirm that damages are an appropriate remedy even where, as here, there is a contractual sole remedy of repurchase. See Wells Fargo, 2013 U.S. Dist. LEXIS 44955, at *40-41 (holding that the contractually-defined purchase price, offset by any proceeds generated by [p]laintiff s liquidation of the [p]roperties that are not provided as reimbursement to the [t]rust for reasonable servicing advances, represents the appropriate damages calculation in a mortgage repurchase action); Flagstar, 2013 U.S. Dist. LEXIS 16682, at * (awarding damages for defaulted loans despite finding that the the repurchase obligation was plaintiff s exclusive remedy because, among other thing, the originator would receive nothing back on defaulted loans, even if specific loans... were... re-transferred back to the originator). Moreover, nothing in the Agreements limits the Trust s remedies when Nomura breaches the Agreements by failing to comply with its express repurchase obligation. See LaSalle Bank Nat. Ass n v. Lehman Bros. Holdings, Inc., 237 F. Supp. 2d 618, 638 (D. Md. 2002) ( Under New York law, a loan seller s failure to repurchase non-conforming loans upon demand as required by a contract is an independent breach of the contract entitling the plaintiff to pursue general contract remedies for breach of contract ). B. The Trust Is Entitled To Rescission And/Or Damages For Nomura s Breach Of The No Untrue Statement Covenant Nomura next asserts that Section 9(c) of the MLPA and Section 2.03(c) of the PSA also limit the Trust s remedies for breaches of the No Untrue Statement Covenant in Section 7(v) of 15

24 the MLPA. (Def. Mem. at 15-18) However, by its express terms, the sole remedy provision only applies to breaches of the Mortgage Representations set forth in Section 8 of the MLPA: It is understood and agreed that the obligations of [Nomura] set forth in this Section 9 to cure or repurchase a defective Mortgage Loan (and to make payments pursuant to Section 9(b)) constitute the sole remedies of [NAAC] against [Nomura] respecting a missing document or a breach of the representations and warranties contained in Section 8. (MLPA 9(c)) (emphasis added). 11 Nothing in the Agreements limits the remedies available for breaches of the No Untrue Statement Covenant. Accordingly, the Trust may pursue any remedy available at law or equity (MLPA 13). See Lehman Bros. Holdings, Inc. v. Laureate Realty Servs., 2007 U.S. Dist. LEXIS 76940, at *35 (S.D. Ind. Sept. 28, 2007) ( [Defendant s] argument that the sole remedy provision in Section 3(b)(ii) precludes [Plaintiff] from obtaining any remedy on its breach of contract claim is without merit, as that provision does not apply to breaches set forth in Section 2(a) of the MLPSA ) (applying New York law). Further, Nomura is wrong to contend that the No Untrue Statement Covenant would render the MLPA and PSA s repurchase provisions meaningless. (Def. Mem. at 16) Those repurchase provisions were designed to remedy the discovery of an occasional Defective Loan; they were not designed for pervasive breaches and misrepresentations in the Loan files or the MLS. Moreover, the repurchase provisions apply only to the Mortgage Representations, which guarantee certain characteristics of the Loans, and not to the MLS and documents in the Loan files that contain data regarding the Loans. For that, the No Untrue Statement Covenant, together with Section 13 of the MLPA, provide the Trust with relief. 11 Although Section 2.03 of the PSA does not contain the exact same language as Section 9 of the MLPA, it likewise provides a sole remedy for breaches of only those representations and warranties set out in Section

25 Indeed, New York courts have repeatedly affirmed this understanding of sole remedy provisions in mortgage loan securitization documents, holding that loan-by-loan repurchase mechanisms are not intended to remedy a plague of breaches. See, e.g., U.S. Bank, N.A. v. GreenPoint Mortg. Funding, Inc., 2010 N.Y. Misc. LEXIS 471, at *22 (Sup. Ct. N.Y. Cnty. Mar. 3, 2010); In re Bear Stearns Mortg. Pass-Through Certificates Litig., 851 F. Supp. 2d 746, 775 (S.D.N.Y. 2012); Syncora Guar., Inc. v. EMC Mortg. Corp., 2011 U.S. Dist. LEXIS 31305, at *18-19 n.4 (S.D.N.Y. Mar. 25, 2011). In a contract that is exclusively about the sale of Loans, to read the No Untrue Statement Covenant as Nomura suggests would excise the Covenant from the MLPA. Fundamental New York contract law precludes such an absurd result. See, e.g., Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 60 A.D.3d 61, 66 (1st Dep t 2008). Finally, Nomura contends that the Trust s allegations regarding Nomura s pervasive breaches of the No Untrue Statement Covenant are not sufficiently egregious to warrant rescission. (Def. Mem. at 17) However, rescission is an appropriate remedy where, as here, a breach substantially defeats the purpose of a contract. See RR Chester, LLC v. Arlington Bldg. Corp., 22 A.D.3d 652, 654 (2d Dep t 2005); see also Helprin v. Harcourt, Inc., 277 F. Supp. 2d 327, 339 (S.D.N.Y. 2003) ( The test for determining the materiality of a breach for purposes of rescission is whether the alleged breach is of such nature and such importance that the contract would not have been made without it ) (quotations omitted). The Complaint alleges: (a) pervasive, material breaches of the No Untrue Statement Covenant and Mortgage Representations that infect at least 1,900 Loans; (b) widespread breaches in the Loan files and the MLS, and (c) that the sheer number of Nomura s breaches those already uncovered and those remaining to be reflect a failure by Nomura to deliver what it promised. If Nomura had disclosed this information prior to the Trust s inception, the securitization would never have 17

26 closed. There can be no doubt that the purpose of the contract has been defeated, and that the Trust is entitled to rescission, or alternatively, compensatory damages.12 III. The Complaint Adequately States Claims For Specific Performance Of Nomura s Repurchase Obligations A. All Defective Loans Can Be Repurchased Nomura next argues that certain classes of Loans those that have been written off or liquidated need not be repurchased, and that the Trust somehow failed to adequately plead facts regarding such Loans. (Def. Mem. at 18-19) Of course, the Complaint need only put Nomura on notice of the claims against it, not prove the Trust s case with regard to every Defective Loan or address potential arguments Nomura might raise. See CIFG, 2012 N.Y. Misc. LEXIS 3986, at * There can be no doubt that the Complaint exceeded that standard.13 In any event, Nomura s tortured reading of the Agreements amounts to nothing more than an attempt to escape liability for some of its most egregious breaches, which would lead to an implausible result that was neither agreed to nor contemplated by the parties. Indeed, if this Court were to adopt Nomura s position, it would provide Nomura with a windfall for the Defective Loans that quickly defaulted. Nothing in the Agreements suggests that the parties intended such an absurd result. 14 Nevertheless, Nomura erroneously contends that the definition 12 Rescission is also proper where, like here, it is impossible to calculate the future damages caused by Nomura s breach of the No Untrue Statement Covenant. See Helprin, 277 F. Supp. 2d at (plaintiff entitled to rescission where damages could be affected by future performance); see also U.S. Postal Serv. v. Phelps Dodge Refining Corp., 950 F. Supp. 504, 516 (E.D.N.Y. 1997) (one factor favoring rescission is when damages cannot be ascertained with reasonable certainty ). If damages cannot be ascertained with reasonable certainty, rescission is a matter of right, with restitution instead of compensation. Callanan v. Keeseville, Ausable Chasm & Lake Champlain R.R. Co., 199 N.Y. 268, 284 (1910). 13 Indeed, Nomura asks this Court to provide an improper advisory opinion that, if written-down or liquidated Defective Loans exist, they cannot be repurchased. See State Farm Mut. Auto. Ins. Co. v. Farescal, 2009 N.Y. Misc. LEXIS 1161, at *4 (Sup. Ct. Queens Cnty. May 13, 2009); Health Ins. Plan v. Calvary Hosp., 2004 N.Y. Misc. LEXIS 2185, at *7 (Sup. Ct. N.Y. Cnty. Nov. 8, 2004) (Richter, J.). 14 In direct contravention of its for-litigation-only position, Nomura has repurchased released or liquidated loans from other trusts. (See Fay Aff. Exs. F-I) These repurchases are consistent with industry custom and practice in the 18

27 of Purchase Price precludes repurchase of certain Defective Loans. 15 However, the PSA defines Purchase Price as 100% of the unpaid principal balance of the Mortgage Loan on the date of such purchase plus accrued interest. (PSA 1.01) Nothing in this definition suggests that a Loan that has been written off the Trust s balance sheet has no unpaid principal balance. That a Defective Loan is written off the Trust s books reflecting the determination that there are no likely servicing recoveries does not suggest that the amount the debtor owed cannot be determined. In other words, just because the Trust is obligated to treat a written-off Loan as having no principal balance, the amount the borrower owes remains ascertainable. See Assured Guar. Mun. Corp. v. Flagstar Bank, FSB, 2011 U.S. Dist. LEXIS , at *25 (S.D.N.Y. Sept. 7, 2011) ( [T]he proper measure of damages for a charged off loan is the amount of the outstanding principal balance on that loan at the time it was charged off ). In addition, Nomura s argument concerning liquidated loans under Section 2.03(c) of the PSA has been explicitly rejected by two recent New York decisions, which hold that repurchase obligations shift the risk of loss to loan originators regardless of whether a loan has been liquidated. First, in Flagstar, the court awarded plaintiff over $90 million in damages for defective, defaulted loans even though plaintiff s sole contractual remedy for defendant s breach of a representation or warranty was repurchase U.S. Dist. LEXIS 16682, at * The court extrapolated the damages award from two 400-loan samples over the very objection raised here by Nomura (Def. Br. at 18) that the breaching mortgage loans must be delivered back to the defendant originator upon repurchase. Id., at *115. And in Wells Fargo, the defendant RMBS market, and the parties should be afforded an opportunity to conduct discovery before any of these issues are decided by the Court. 15 Notably, nowhere in the Prospectus or the Prospectus Supplement for the Trust publicly filed with the U.S. Securities and Exchange Commission and required by federal securities laws to disclose the material risks of an investment in the Certificates does Nomura warn investors that its repurchase obligation is subject to any of the limitations conjured by Nomura for purposes of its motion. 19