Claim Untimely Despite Being Brought Within Six Years of Accrual As Defined by Contract

On September 18, 2015, Justice Kornreich of the New York County Commercial Division issued a decision in Bank of N.Y. Mellon v. WMC Mortgage, LLC, 2015 NY Slip Op. 25318, dismissing a breach of contract claim as time-barred even though it was brought within six years of the time it accrued according to the parties' agreement.

In Bank of N.Y. Mellon, the plaintiff RMBS trustee brought a breach of contract claim against the defendant mortgage companies to "put back non-conforming loans" that had been transferred to the trust. The court ruled that in light of the Court of Appeals' recent decision in ACE Securities Corp., Home Equity Loan Trust, Series 2006-SL2 v. DB Structured Products, Inc., 25 NY3d 581 (2015), the plaintiff's claims were time-barred, notwithstanding that they were brought within six years of their accrual, as defined by the agreement governing the trust. That provision provided:

Any cause of action against the Seller or the Servicer, as applicable, relating to or arising out of the breach of any representations and warranties made in Subsection 7.01 or 7.02 shall accrue upon (i) discovery of such breach by the Purchaser or notice thereof by the Seller or the Servicer to Purchaser, (ii) failure by the Seller or the Servicer, as applicable, to cure such breach, repurchase such Mortgage Loan as specified above, substitute a Substitute Mortgage Loan for such Mortgage Loan as specified above and/or indemnify the Purchaser, and (iii) demand upon the Seller or the Servicer, as applicable, by the Purchaser for compliance with the terms of this Agreement.

The trial court recognized that "[t]he word 'and' prior to step three indicates that a put-back claim does not accrue until plaintiff serves a demand on defendants after defendants refuse to cure or repurchase an allegedly non-conforming loan." However, it went on to hold that:

The Court of Appeals has reaffirmed this state's longstanding public policy of providing for statute of limitations rules that take precedence over competing contractual and equitable considerations. The ACE Court considered and rejected an RMBS trustee's arguments regarding why put-back claims should not be considered to accrue at closing. That holding, as plaintiff concedes, is applicable to this case. The Court, however, also addressed what it deemed to be "The Trust's strongest argument": "that the cure or repurchase obligation was a substantive condition precedent to suit that delayed accrual of the cause of action." It rejected this argument. In holding that pre-suit repurchase demand is a procedural (as opposed to substantive) condition precedent, the Court distinguished between a demand that is a condition to a party's performance and a demand that seeks a remedy for a preexisting wrong. The Court reasoned that the Trust suffered a legal wrong at the moment DBSP allegedly breached the representations and warranties, that the Trust was just limited in its remedies for that breach, and hence, the condition was a procedural prerequisite to suit.

. . . Though ACE did not involve an accrual provision, the substance of the pre-suit demand process in the MLSA is substantively similar to the contracts in ACE and, indeed, is substantially similar to the typical governing contracts in put-back actions. Consequently, the court cannot hold that the repurchase protocol in Section 7.03 of the MLSA is a substantive condition precedent without contravening ACE.

(Internal quotations and citations omitted).