Leave to Amend to Add Failure-to-Notify Claim Denied When Sole-Remedy Repurchase Protocol Did Not Require Defendant to Give Notice

On July 8, 2024, Justice Joel M. Cohen of the New York County Commercial Division issued a decision in U.S. Bank, N.A. v. DLJ Mortgage Capital, Inc., Index No. 653140/2015, denying the plaintiff's motion for leave to amend to add a claim for failure to notify upon discovery of a breach of a mortgage, holding that the sole-remedy repurchase protocol in the underlying contract did not impose a duty to notify on this particular defendant, explaining:

Plaintiff’s Proposed Second Amended Complaint seeks to add a claim that Section 7.04 of the MLPA imposed an obligation on Ameriquest to provide notice to Plaintiff upon the discovery of a breach and that Ameriquest’s failures prevented Plaintiff from bringing timely claims (NYSCEF 310 ¶¶26, 52, 99-104). Specifically, it seeks to allege that “Section 7.04 of the MLPA requires Ameriquest to give prompt written notice to the Trustee upon discovering breaches of Ameriquest’s and DLJ’s R&Ws” (NYSCEF 310 ¶101).

Section 7.04 of the MLPA provides, in relevant part:

Upon discovery by the Purchaser of a breach of any of the foregoing representations and warranties which materially and adversely affects the value of the Mortgage Loans or the interest of the Purchaser (or which materially and adversely affects the interests of the Purchaser in the related Mortgage Loan in the case of a representation and warranty relating to a particular Mortgage Loan), the party discovering such breach shall give prompt written notice to the others.

The first paragraph of the MLPA defines Defendant DLJ as the “Initial Purchaser.” “Purchaser” is, in turn, defined as “the Initial Purchaser or the Person, if any, to which the Initial Purchaser assigns its rights and obligations hereunder as Purchaser with respect to a Mortgage Loan, and each of their respective successors and assigns.” Defendant Ameriquest, from which DLJ acquired the subject mortgage loans, is not a “Purchaser” and thus is not subject to the requirements of Section 7.04.

The MLPA’s repurchase protocol is not ambiguous and the Trustee’s attempt to establish an affirmative contractual obligation on the part of Ameriquest that is not included in the MLPA is rejected (IKB Intl., S.A. v Wells Fargo Bank, N.A., 40 NY3d 277, 285 [2023] [“the governing agreements do not impose on defendants an affirmative duty to enforce repurchase obligations and so those claims should be dismissed”]).

While leave to amend is freely granted, leave will be denied if the proposed amended pleading would not survive a motion to dismiss, which the court held was the case here. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning sole-remedy repurchase protocols or motions for leave to amend.