Claims Against RMBS Sponsor Survive Despite Time-Barred Claims Against Originator

On September 7, 2016, Justice Kornreich of the New York County Commercial Division issued a decision in Bank of NY Mellon v. WMC Mortgage, LLC, 2016 NY Slip Op. 26282, upholding claims against an RMBS sponsor even though parallel claims against the loan originator were time-barred, explaining:

Section 2.03(a)(i) of the PSA provides, in pertinent part, that in the event that WMC shall fail to cure the applicable breach or repurchase of a Mortgage Loan in accordance with the repurchase protocol, JPMMAC shall do so. However, JPMMAC's repurchase obligations are limited to the extent that WMC is obligated to do so under the MLSA and the AARA. The parties dispute the meaning of "to the extent that WMC is obligated to do so" in light of the claims against WMC being time-barred. JPMMAC takes the position that it cannot have liability since WMC no longer has any repurchase obligations. BONY disagrees, contending that JPMMAC is conflating the existence of an obligation with whether the obligation is legally enforceable. BONY is correct.

It is well settled that the running of the statute of limitations does not extinguish the underlying liability. [T]he statute of limitations merely cuts off a plaintiff's ability to enforce an obligation through a lawsuit. The statute of limitations, however, does not affect the existence of the obligation itself. Indeed, a statute of limitations defense can be waived, further proving that a contractual obligation does not cease to exist after a claim for breach becomes time-barred.

Under ACE, the period to timely commence suit against WMC has elapsed. Nonetheless, since WMC continues to have the legal obligation to repurchase nonconforming loans, despite such obligation not being enforceable, JPMMAC remains liable under section 2.03(a)(i). These extremely sophisticated parties could have made JPMMAC's liability dependent on the enforceability rather than the existence of BONY's claims against WMC. They chose not to. The court may not rewrite the agreement to add the additional condition that WMC's obligation be enforceable. Hence, JPMMAC is not absolved of liability under the PSA by virtue of the claims against WMC being time-barred.

(Internal quotations and citations omitted).