Opinion Granting Motions to Dismiss in BNP Paribas and Deutsche Bank Cases Against BofA
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Transcript of Opinion Granting Motions to Dismiss in BNP Paribas and Deutsche Bank Cases Against BofA
8/4/2019 Opinion Granting Motions to Dismiss in BNP Paribas and Deutsche Bank Cases Against BofA
http://slidepdf.com/reader/full/opinion-granting-motions-to-dismiss-in-bnp-paribas-and-deutsche-bank-cases 1/29
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------- ------X
BNP PARIBAS MORTGAGECORPORATION and BNP PARIBAS,
a i n t i f f s ,
10 Civ. 8630 (RWS)
- aga ins t -
OPINION
BANK OF AMERICA, N.A.,
Defendant .
- - - - - - - - -X
DEUTSCHE BANK AG,
Pla in t i f f ,
10 Civ. 8299 (RWS)
- aga ins t
OPINION
BANK OF AMERICA, N.A.,
Defendant .
- - - - - - - - - - - - - - -X
A P P EA RAN C E S:
Attorneys fo r Pla in t i f f s BNP Paribas
BOIES SCHILLER & FLEXNER LLP
333 Main S t ree t
Armonk, NY 10504
By: Robin A. Henry,
Motty Shulman, Esq.Jack Wilson, Esq.
Case 1:10-cv-08299-RWS Document 63 Filed 08/30/11 Page 1 of 29
8/4/2019 Opinion Granting Motions to Dismiss in BNP Paribas and Deutsche Bank Cases Against BofA
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At
fo r Pla in t i f f Deutsche Bank AG
WILLIAMS & CONNOLLY LLP
725 Twelf th St ree t , N.W.
Washington,DC
20005By: William E. McDaniels, Esq.
Thomas G. Ward, Esq.
Stephen P. Sorensen, Esq.
fo r Defendant Bank of America N.A.
MUNGER, TOLLES & OLSON LLP
355 South Grand Avenue, 35th Floor
Los Angeles, CA 90071-1560
By: Marc T.G. Dworsky, Esq.
Kris t in Lins ley Myles, Esq.
Richard S t. John, Esq.
Sarala V. Nagala, Esq.
KING & SPALDING LLP
1185 Avenue of the Americas
New York, NY 10036
By: Richard T. Marooney, Esq.
Case 1:10-cv-08299-RWS Document 63 Filed 08/30/11 Page 2 of 29
8/4/2019 Opinion Granting Motions to Dismiss in BNP Paribas and Deutsche Bank Cases Against BofA
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Sweet, D.J.
In the se re l a t ed ac t ions , Defendant Bank of America,
N.A. ("BoA" or "Defendant") has moved, pursuant to Rule 12(b) (6)
of the Federal Rules of Civi l Procedure, to dismiss complaints
f i l ed by P l a i n t i f f s BNP Paribas Mortgage Corpora t ion ("BNP") and
Deutsche Bank AG ("DB" ) ( co l lec t ive ly , " P l a i n t i f f s " ) . Both
ac t ions cons i s t of claims fo r convers ion of mortgage loans and
t h e i r proceeds t h a t Pla in t i f f s a l lege BoA conver ted while
serving as , among o t he r ro les , Col la te ra l Agent fo r the loans ,
which P l a i n t i f f s were noteholders .
Both cases were i n i t i a l l y f i l ed in Fl o r i da and l a t e r
t rans fe r red to the Southern D i s t r i c t of New York, where they
were re l a t ed to tw o pending breach of c on t r a c t cases , Deutsche
Bank AG v. Bank of America, N.A., No. 09 Civ. 9784 (RSW) ("DB
I" ) and BNP Paribas Mortgage Corp. e t a l . v . Bank of America,
N.A., No. 09 Civ. 9783 (RSW) ("BNP I" ) ( co l lec t ive ly , the
"con t rac t cases") I which arose out of the co l l apse of the
Taylor , Bean & Whitaker Mortgage Corpora t ion ("TBW").
For the reasons se t fo r th below, BoA's motion to
dismiss i s gran ted with leave to rep lead wi th in 30 days .
1
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8/4/2019 Opinion Granting Motions to Dismiss in BNP Paribas and Deutsche Bank Cases Against BofA
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I . PRIOR PROCEEDINGS
In the cont rac t ac t ions , BNP and DB each f i l ed i n i t i
Complaints aga ins t BoA on November 25, 2009. Both f i l ed Amended
Complaints on March 17, 2010. 1
In its Amended Complaint, DB asse r ted e i gh t causes of
ac t ion fo r breach of c on t r a c t , a l leg ing t ha t BoA breached the
cur ren t and p r i o r vers ions of four c on t r a c t s t h a t crea t ed and
governed a f a c i l i t y fo r th e o r ig in a t i o n , s a l e , and purchase of
home mortgages through TBW and its wholly-owned subs id ia ry ,
Ocala Funding, LLC ("Ocala tt ) ( the f ac i l i t y herea f t e r re fe r red to
as the "Ocala Faci l i ty t t ) . These cont rac t s inc lude the Secur i ty
Agreement, the Depos i ta ry Agreement, th e Cus tod ia l Agreement,
and the Base Indenture ( c o l l e c t i v e ly th e "Fac i l i ty Documents tt )
In addi t ion to its breach cont rac t c la ims , DB asse r ted a
cla im fo r breach of f iduc ia ry duty and seeks indemni f ica t ion
under the cur ren t and p r i o r ve rs i ons of th e Depos i ta ry ,
Secur i ty , and Custodi Agreements. BNP d id not br ing any
claims under the p r i o r ve rs i ons of the Fac i l i t y Documents, but
o therwise echoed DB's claims, with the addi t ion of a claim fo r
Hereaf ter , the Amended Complaint f i l ed by DB in i t s cont rac t s case w i l l
be re fe r red to as th e "DB-.!. AC II and th e Amended Complaint f i l ed by BNP in its
c o n t r a c t s case w i l l be re fe r red to as th e "BNP I AC."
2
1
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"Breach of Contrac t / lndemni f ica t ion H under a March 27, 2009 s ide
l e t t e r .
On Apr i l 30, 2010/ BoA moved to dismiss the Amended
Complaints and o ra l argument was heard on t h a t motion on
September 15, 2010. On March 23, 2011/ the Court gran ted th e
motions as to the cla ims fo r breach of the Depos i to ry Agreement,
Custodia l Agreement, and March 2009 Let te r / as to the c la ims fo r
indemni f ica t ion , and as to the cla ims r e l a t i n g to Ocala Notes
i s sued p r i o r t o Ju ly 20, 2009. Th e Court denied BoA's motions
to dismiss as to a l l remaining c la ims .
On August 30, 2010, BNP and DB f i l ed new ac t ions
aga ins t BoA in the Southern D i s t r i c t of Flor ida .2
On November
17, 2010/ the ac t ions were t r a n s f e r r e d to the Southern s t r i c t
of New York and re fe r red to t h i s Court . In t hese , the i n s t a n t
act ions / en t i t l ed BNP Paribas Mortgage Corp. v . Bank of America
N.A., No. 10 Civ. 8630 (RSW) ("BNP I I" ) and Deutsche Bank AG v.
Bank of America N.A., No. 10 Civ. 8299 (RSW) ("DB I I"
( co l lec t ive ly , the "convers ion cases ll), BNP and DB a l lege two
causes of a c t i on f o r convers ion: the f i r s t fo r convers ion of
Hereaf ter , the Complaint f i l ed by DB in its convers ion ac t ion wil l be
re fe r red to as the "DB I I Compl." and the Complaint f i l ed by BNP in i t s
convers ion case wil l be re fe r red to as the "BNP I I Compl."
3
2
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ce r t a in mortgage loans ( co l lec t ive ly , the "Loans") and second
fo r convers ion of the sa le proceeds of those loans .
On November 23, 2010, BoA f i l ed motions to dismiss the
new a c t i ons . Those motions were heard and marked fu l ly
submit ted on January 26, 2011.
I I . THE FACTS ALLEGED
A. Background
Fami l i a r i t y with the genera l background of t h i s case
and p r i o r l i t i g a t i o n between the p a r t i e s i s assumed. Th e
a l lega t ions as descr ibed in c on t r a c t s cases a re repea ted i n p a r t
as re levant to the i s sues presen ted by th e i n s t a n t motions.
According to th e i n s t a n t Complaints , " [ u ] n t i l it f i l ed
fo r bankruptcy on August 24, 2009, TBW was th e l a r g e s t non-
depos i ta ry r e s i d e n t i a l mortgage l ender in the United Sta tes / l and
was "respons ib le fo r or ig ina t ing approximately $3 0 b i l l i on in
new loans in 2008." DB I I Compl. 12; BNP I I Compl. 12.)
4
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- - -
TBW crea t ed Ocala Funding LLC ("Ocala" o r the "Ocala
Fac i l i ty" ) to provide l i q u id i t y funding to TBW's mortgage
or ig ina t ion bus iness pending the sa le of mortgages or ig ina ted or
purchased by TBW to the Federa l Home Loan Mortgage Corpora t ion
("Freddie Mac") and othe rs . I I Compl. I , 13; BNP I I
Compl. I , 13.) Ocala ra i sed cash by i s suing l i q u id i t y notes
in tw o se r i e s Ser ies 2005 1 Secured Liquid i ty Notes ( the
"2005-1 Notes") and Ser ies 2008 1 Secured Liquid i ty Notes ( the
"2008-1 Notes") ( co l lec t ive ly , the "Ocala Notes") . Pl a i n t i f f s
aver t ha t BNP i s the owner of I 852 of the outs tanding 2005 1
Notes, which it purchased fo r $480.7 mil l ion , and t ha t DB i s the
owner of a l l of the 2,126 outs tanding 2008-1 Notes, purchased
fo r over $1.2 b i l l i on . See BNP I I CampI. 2, 14-17; DB I I
CampI. 2, 3, 14.) BoA served in severa l d i s t i n c t bu t re l a t ed
capac i t i e s fo r the Ocala Fac i l i t y : as Indenture Trus tee ,
Col la te ra l Agent, Deposi tary and Custodian. The Loans
cons t i tu ted c o l l a t e r a l backing the Notes.
The cont rac tua l r igh t s and r e sp o n s ib i l i t i e s of BoA,
TBW, Ocala, DB and the BNP Pl a i n t i f f s with r espec t to the Ocala
Fac i l i t y are se t out in the fol lowing Ocala Fac i l i t y Documents:
the 2008 Base Indenture ; the 2008 Secur i ty Agreement; the 2005-1
Deposi tary Agreement ( re la t ing to the 2005 1 Notes and upon
which the BNP Pl a i n t i f f s sued in i t s cont rac t s case) and 2008 1
5
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-----
Deposi tary Agreement ( re la t ing to the 2008-1 Notes and upon
which DB sued in i t s cont rac t s case ) ; the 2008 Custod ia l
Agreement; and the March 2009 Le t t e r .
In Augustl 2009 1 TBW/s of f i ces were ra ided by law
enforcement au tho r i t i e s TBW s topped or ig ina t ing mortgages and
Freddie Mac te rminated TBW/s e l i g ib i l i t y to s e l l and se rv ice
Freddie Mac loans . On August 10 1 2009 1 BoA declared an Event of
Defau l t under th e Base Indenture . In the wake
col lapse l Ocala has fa i led to repay the money owed to DB and BNP
in the i r capaci ty as holders of the Ocala Notes.
B. The Conversion Alleged
Th e i ns t an t Complaints lege t ha t BoA ac t ing as
Col la te ra l Agent fo r the benef i t of Pla in t i f f s l per fec ted i t s
f i r s t - p r i o r i t y secur i ty i n t e re s t in the Loans bY I among othe r
th ings l t aking possess ion o f them. I I Compl. 17 18; BNP
I I Compl. 17-18. ) BoA then sent the Loans to Colon ia l Bank
under a se r i e s of ba i lee l e t t e r s ( the "Bai lee Let ters" ) . (DB I I
Compl. 18; BNP I I Compl. 18.) These l e t t e r s af f i rmed t ha t
th e Loans -cons t i tu t e a por t ion th e Assigned Col la t e ra l as
def ined in the Secur i ty Agreement" and t h a t - [e lach of the
6
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Mortgage Notes/ Mortgages and Assignments of Mortgages i s
sub jec t to a s e c u r i t y i n t e r e s t in favor of the C o l l a t e r a l Agent
fo r the benef i t of the Secured Par t i e s" i . e . BNP and DB). DB
! ! Compl. 19; BNP I I Compl. 19.) The Bai lee L e t t e r s
requi red t h a t the purchase pr ice fo r the Loans be wired to the
Ocala Funding C o l l a t e r a l Account a t Bank of America (No.
722493.4) and s t a t ed tha t "u n t i l payment t h e re f o r i s received/
the aforesa id s e c u r i t y i n t e re s t t h e re in w i l l remain in f u l l
force and e f fec t / and you sh a l l hold possess ion of such Assigned
Col la te ra l and the documenta t ion evidenc ing same i n t r u s t as
cus todian / agent / and ba i lee fo r and on beha l f o f the Secured
Par t i e s . 1I DB I I Compl. 20; BNP I I Compl. 20.)
P l a i n t i f f s a l lege th a t desp i t e t h i s / the purchase
pr ice of the Loans was never sen t to the Ocala Funding
Col la te ra l Account/ and any sa le proceeds rece ived on the Loans
were not pa id to Ocala or P l a i n t i f f s . (DB I I Compl. 21; BNP I I
Compl. 21.) On August 11/ 2009/ fol lowing the co l l apse of
TWB/ BoA/ ac t ing as c o l l a t e r a l agent and cus tod ian of Ocala /
demanded t ha t t ha t Colonia l Bank re tu rn the Loans. ___1 Compl.
23(a) ; BNP I I Compl. 23(a ) . ) On August 12, 2009 1 BoA
commenced an ac t ion in Southern D i s t r i c t of Flor ida aga ins t
Colonial Bank l v. Colonial Bank, No. 09 Civ.
22384 ( the "Colonial Act ion ll a s s e r t i n g BoA's ownership,
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i n t e r e s t in the Loans, as Col la te ra l Agent. (DB I I Compl.
23(b) i BNP I I Compl. 23(b) . ) On August 24, 2009, BoA
commenced a second ac t ion in the Southern D i s t r i c t of Flor ida ,
Bank of America NA v. Taylor , Bean & Whitaker Mort. Corp. , No.
09 Civ. 22478 (the "TBW Action") , s imi l a r ly a s s e r t i n g Ocala ' s
ownership i n t e re s t in the Loans t h a t they are the proper ty of
BoA as C o l l a t e r a l agent fo r the secured p a r t i e s i . e .
Pl a i n t i f f s ) . DB I I Compl. 23(c) i BNP I I Compl. 23(c ) . )
P l a i n t i f f s a l l ege t h a t unbeknownst to them and desp i t e
BoA's repea ted r epresen ta t ions t h a t the Loans were being held by
BoA as co l l a t e ra l agent fo r the benef i t of Pl a i n t i f f s and
secur ing Oca la ' s ob l i ga t i ons to P l a i n t i f f s under th e Notes (DB
II Compl. 22i BNP I I Compl. 22 . ) , BoA en te red in to a
t ransac t ion to buy the Loans from TBW under an Amended and
Resta ted Mortgage Loan P a r t i c ip a t i o n Purchase and Sale Agreement
( the "Early Purchase Fac i l i ty" ) ente red in to on May 4, 2009.
DB I I Compl. 24-25i BNP I I Compl. 24-25.) P l a i n t i f f s
a l l ege t h a t t h e r e a f t e r , BoA sold "near ly a l l " of the Loans to
Freddie Mac and rece ived s a l e s proceeds fo r the Loans from
Freddie Mac but did not pay the Ocala Funding C o l l a t e r a l Account
o r P l a i n t i f f s fo r the Loans o r otherwise send th e sa le proceeds
to the Col la te ra l Account o r P l a i n t i f f s . (DB I I Compl. 26i
BNP I I Compl. 26 27.)
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I I I . STANDARD OF REVIEW
On a motion to dismiss pursuant to Rule 12, a l l
f ac tua l a l l e g a t i o n s in the complaint are accepted as t r u e , and
I in fe rences are drawn in favor of the p leader . Mil l s v . Polar
Molecular Corp. , 12 F.3d 1170, 1174 (2 d Cir . 1993). The i s sue
" is not whether a p l a i n t i f f wi l l u l t ima te ly p re v a i l but whether
the c la imant i s en t i t l ed to o f f e r evidence to suppor t the
c la ims ." Vi II Inc. v. Town of Darien, 56 F.3d 375, 378
(2 d Ci r . 1995) (quoting Scheuer v . Rhodes, 41 6 U.S. 232, 235-36
(1974)) .
To surv ive a motion to dismiss pursuant to Rule
12 (b) (6) , "a complaint must conta in su f f i c i en t f ac tua l matte r ,
accepted as t rue , to ' s t a t e a cla im to r e l i e f t h a t i s aus ib le
on i t s face. '11 Ashcrof t v . Iqba l , - - U.S. --I 129 S. C t. 1937,
1949 (2009) (quoting Bel l At l . Corp. v . Twombly, 550 U.S. 544,
570 (2007)) Pl a i n t i f f s must a l lege su f f i c i en t fac t s to
"nudger] t h e i r cla ims across the l ine from conceivable to
p laus ib le . " Twombly, 550 U. S. a t 570. Though t he cour t must
accept the f ac tua l a l l ega t ions of a complaint as t rue , it i s
"not bound to accep t as t rue a l e ga l conclusion couched as a
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f ac tua l a l l e g a t i o n . " Iqba l 129 S. Ct. a t 1949 (quot ing Twombly I
55 0 U.S. a t 555) .
IV. CLAIM DUPLICATION
At the t h resho ld l BoA argues t h a t th e convers ion
ac t ions should be dismissed as dupl i ca t ive and an improper
e f fo r t a t c la im-sp l i t t ing . (BoA Mem. 1 .) According to BoAI the
new cla ims a s se r t i n j u r i e s a r i s i n g from the same f a i l u r e by
Ocala to pay its ob l i ga t i ons on the same se r i e s of Notesl
t h a t
Pla in t i f f s a l lege the same dut i es of BoA to preserve Ocala/s
asse t s under the Secur i ty Agreement and t h a t the damages
Pla in t i f f s seek a re a d i s c re t e subse t o f the damages they a re
demanding in the cont rac t ac t ions . (BoA Mem. 2 .)
"As p a r t of i t s genera l power to admi n i s te r i t s
docket a d i s t r i c t cou r t may s tay or dismiss a s u i t " where it i s
"dupl i ca t ive of another federa l cour t s u i t . Cur t i s v. Ci t ibank lI
N.A'I 226 F.3d 133 1 138 (2d Cir . 2006). As with re s ud ica t a
cha l lenges arguments on t h i s ground may proper ly be made v ia a
motion to dismiss . See e . g ' l Vega v. Rel l 1 No. 09 Civ. 737 1
2011 WL 2471295 1 a t *11-*12 (D.Conn. June 211 2011) i New Hyde
Park Car Care Center , Inc . v . Cumberland Farms Inc . , No. 09
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Civ. 1535, 2011 WL 2462753, a t *2 (E.D.N.Y. June 17, 2011) i see
a l so Thompson v. County of Frankl in , 15 F.3d 245 1 253 (2d Ci r .
1994) ("Res jud ica ta cha l lenges may proper ly be ra i sed v ia a
motion to dismiss fo r fa i lu re to s t a t e a claim under Rule
12 (b) (6) " ) . In cons ider ing the "complex problems" t h a t mul t ip le
federa l f i l i n g s can produce the Second Circu i t has noted t h a t
t he re i s no " r i g i d t e s t " but i ns t ead t h a t a d i s t r i c t cou r t i s
requi red to "cons ider th e e q u i t i e s of the s i t u a t io n when
exerc i s ing i t s d i s c re t i o n . " Cur t i s , 22 6 F.3d a t 138. "A cour t
faced with a dupl i ca t ive s u i t wi l l commonly s tay the second
s u i t , dismiss it without pre jud ice en jo in the p ar t i e s from
proceeding with it, o r conso l ida te the two a c t i o n s . " Id .
( c i t a t i o n s omit ted) .
Fi r s t , BoA contends t h a t d i smi s sa l with pre jud ice i s
app rop r i a te because in f i l i n g the convers ion a c t i ons , P l a i n t i f f s
have improperly a t tempted to "expand t h e i r l e g a l r i g h t s , " Id . a t
140, and " s e t s a i l fo r the hopefu l ly more favorab le waters of
another d i s t r i c t / " Semmes Motors Inc ' l v . Ford Motor Co. , 42 9
F.2d 11971
1203 (2 d Cir . 1970), in orde r to avoid th e
j u r i sd i c t i o n of the cour t and e f f e c t of any adverse ru l ing in
the cont rac t s cases . However, t he re i s no ind ica t ion of bad
f a i th or d i l a t o r y motive here .
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Th e hi s to ry of the Colonia l Action i s s ign i f ican t in
t h i s regard . As BoA desc r ibes l Defendant "f i l ed th e Colonia l
Bank ac t ion in August 2009 to recover ce r t a in mortgage loans
t ha t Colonia l wa s holding when Ocala co l l apsed . " (BoA Reply
Mem. 7 n.4.)3 Pl a i n t i f f s a s se r t t h a t they d id not "d iscover[]
t ha t BoA I in i t s i nd iv idua l capac i ty had purchased" the
Loans u n t i l July and August of 2010. (PIs. Opp. 5.) At th e t ime
the convers ion ac t ions were f i l ed in August of 2010 1 the
Colonial Action was pending l and BoA had appeared before the
Flor ida cour t in the Colonia l Action and t h a t cour t had
considered Ocala ls ownership of the mortgages a t i s sue in t h i s
case . Pl a i n t i f f i l ed not ices of re l a t ed cases with the
Flor ida cour t l i s t i ng the Colonia l Action and con t rac t cases l
and provided t h i s Court with copies of the Complaints and
re l a t ed not ices from the conversion cases on August 30 1 2010.
BNP I I Compl. , 23 n.2j BNP III Docket N o . 5 & 13j DB III
Docket Nos. 4 .) Severa l weeks a f t e r P l a i n t i f f s f i l ed the
convers ion ac t ions l BoA provided Pl a i n t i f f s with wri t t en not i ce
of i t s i n t e n t to abandon th e Colonial Action and have Pl a i n t i f f s
take over t h a t l i t i ga t ion in i t s s tead l which Pl a i n t i f f s
decl ined to do. On October 13 1 2010 1 BoA volun ta r i ly dismissed
BoA's conten t ion t h a t Pla in t i f f s " ins t ruc ted BoA to f i l e th e Colonia l
Bank act ion, an d even wrote the f i r s t d r a f t of the complaint" (BoA Mem. 7 n.4
( c i t ing Decl. of Pa t r i ck L. Robson 2)) i s of no moment. Ably r epresen ted
as it i s , Defendant cannot plaus ib ly contend t h a t it wa s not r e spons ib le fo r
the Colonia l Action o r the pos i t ions it took before t h a t cour t .
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the Colon ia l Action without pre jud ice and t h e rea f t e r f i l ed a
motion in the cont rac t Actions to en jo in the convers ion ac t ions
in Flor ida . Th e p ar t i e s then jo i n t l y moved to t r ansfe r red the
conversion cases to th i s cour t . This hi s to ry does not ind ica te
t h a t Pl a i n t i f f s were at tempt ing to se t s a i l fo r a more favorab le
judge or cour t in choosing to f i l e the i n s t a n t act ions in
Flor ida .
Second, BoA contends t h a t the convers ion cases should
be dismissed as dupl ica t ive . The ru le aga ins t dup l ica t ive
l i t i ga t ion i s re l a t ed to , but d i s t i n c t from, the doc t r ine of re s
udica t a . Cur t i s , 226 F.3d a t 138. The power to dismiss
dupl ica t ive su i t s i s meant to fos t e r j u d i c i a l economy and the
"comprehensive dispos i t ion of l i t i g a t io n " as wel l as t o p ro t e c t
p ar t i e s from the vexa t ion of concurren t l i t i ga t ion over the same
subjec t . See Id . (c i t a t ions omitted) . In assess ing dupl ica t ion
between claims o r act ions , nthe f ac t t h a t the f i r s t and second
su i t s involved the same p ar t i e s , s imi la r l ega l i s sues , s imi la r
f ac t s , o r es sen t i a l l y the same type of wrongful conduct i s n o t
di spos i t ive . " Maharaj v . BankAmerica Corp. , 128 F.3d 94, 97 (2d
Cir . 1997) . Ins tead, New York 's " t ransac t iona l approach"
focuses on "how the fac ts are re l a t ed in t ime, space, or ig in or
mot iva t ion i whether they form a convenient t r i a l uni t ; and
whether t r ea t ing them as a u n i t conforms to the p a r t i e s '
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expecta t ions ll in order to determine " i f the ac t ions are
grounded on the same gravamen of the wrong. II Yeiser v . GMAC
Mortg. Corp. , 535 F. Supp. 2d 413 t 421 (S.D.N.Y. 2008) (c i t ing
Marinel l i Assocs. v. Helmsley-Noyes CO. t 705 N.Y.S.2d 571, 57 5
76 (N.Y. App. Div. 2000)) . In so doing cour t s consider
" 'whether the same evidence i s needed to suppor t both c la ims,
and whether the fac t s e ssen t i a l to the second were presen t in
the f i r s t . t i l Prime . Co. Inc . v. St , 904 F.2d 811, 816 (2d Cir . 1990) (quoting N.L.R.B. v. United Technologies
Corp. , 706 F.2d 1254 t 1260 (2d Cir . 1983)) i accord Tucker v .
Arthur Andersen & Co., 646 F.2d 721, 727 (2d Cir . 1981) i
Herendeen v. Champion I n t ' l Corp. , 525 F.2d 130, 13 3 34 (2d Cir .
1975) .
Pla in t i f f s ' conversion and cont rac t cases do not
possess the requ i s i t e measure of i d en t i t y to suppor t di smissa l .
Th e cen t ra l t ransac t ion in the cont rac t ac t ions regards BoA's
cont rac tua l re l a t ionsh ip with Pl a i n t i f f s and i s def ined by the
Ocala Fac i l i t y Documents. The key quest ion in those cases i s
whether BoA breached i t s cont rac tua l and f iduc ia ry ob l iga t ions
under those documents. (BNP I AC 30i DB I AC 32.) In
cont ras t , the core t ransac t ion in the convers ion ac t ion i s
whether BoA unlawful ly asse r ted dominion and cont ro l over Ocala-
owned loans and re ta ined those loans o r the proceeds of those
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loans fo r i t s own beha l f . BNP II Compl, 4; DB II Compl. 4.)
a i n t i f f s ' cla ims, i f unders tood to be der iva t ive as they urge,
are between Bank of America and it f see "PI. Opp. 3) ,
o r Bank of America and Ocala. 4
Moreover, th e convers ion and c on t r a c t ac t ions se
from se t s of f ac t s tha t are not co-ex tens ive with each othe r and
which would r equ i re d i f f e r e n t discovery. The f ac t s and
discovery cent to th e convers ion ac t ions inc lude : whether
BoA took possess ion and maintained possess ion and a per fec ted
f i r s t pr i o r i ty s e c u r i t y i n t e re s t in the Loans (while ac t ing as
co l l a t e ra l agent ) i whether BoA purchased and d Ocala-owned
loans fo r i t s own account through the Ear ly Purchase Fa c i l i t y ,
inc lud ing whether it pa id Ocala in a manner t h a t r e l eased
Ocala ' s and BoA's ( in i t s capac i ty as c o l l a t e r a l agent ) r igh t s
in the loans ; whether BoA had knowledge ( its i nd iv idua l
capaci ty) of Ocala ' s and BoA's ( in i t s capac i ty as c o l l a t e r a l
agent) cont inued ownership, possessory and secur i ty i n t e re s t s in
the loans ; where the Converted Loans went once BoA purchased
them; and fo r loans t h a t BoA so ld , where the proceeds went.
4 The par t i es d i f f e r as to t he i r understandings of what s o r t of
der iva t ive su i t , i f pled , Pla in t i f f s are asser t ing : Pla in t i f f s argue theyare making der iva t ive claims on behalf of BoA (see PIs. Opp. 23-24), while
BoA a l t e rna te ly t r e a t s P l a i n t i f f s ' claims as der iva t ive of Ocala o r BoA's
r igh ts BoA Reply Mem. 1-2 , 8 10) . The Court f inds , as discussedtha t f f s have not adequately pled der iva t ive claims as to e i the r Ocala
o r BoA.
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In cont ras t , the cont rac t ac t ions tu rn on BoA's
obl iga t ions to P l a i n t i f f s under the Ocala Fac i l i t y Documents.
Th e key f a c t ua l i s sues in those cases involve : BoA's performance
of i t s obI ions under the Fac i l i t y Documents; th e documents
and other communications between BoA, TBW, Colonia l Bank and/or
other t h i r d -p a r t i e s r e l a t e d t o the Ocala Fac i l i tYi BoA's
prepara t and c e r t i f i c a t i o n of the borrowing base
c e r t i f eS i documents t racking the flow cash and mortgage
loans through the Ocala l i tY i BoA's e f s to r econc i l e
cash and mortgages l eav ing the Ocala Fac i l i t y with the cash and
mortgages enter ing the Ocala Fac i l i tYi and BoA's awareness o r
l a ck the reo f t h a t Ocala was inso lven t and /or whether it took the
requi red ac t ions under the Fac i l i t y Documents to determine
whether Ocala was so lven t .
These plead ings , i f adequate ly pled , are su f f i c i e n t to
e s t i sh convers ion as an ac t ion d i s t i n c t from the breach of
cont rac t c la im. In any event , fo r the reasons se t fo r th i n f ra ,
th e cases a re dismi fo r fa i lu re to s t a t e a c la im. s
To the degree P l a i n t i f f s ' cur ren t claims, as pled on beha l f of
themselves, impl ica te the same wrong l i t i ga t ed in th e cont rac t s cases and
seek r e l i e f fo r th e same los ses under th e Faci l i ty Documents, those claims
are dismissed as dupl i ca t ive . I t i s well es tab l i shed t h a t a t o r t claim
cannot be pred ica ted on a mere breach of cont rac t , but may only succeed i f
th e p l a i n t i f f a l l eges the v io l a t i o n o f an independent duty. See Hargrave v.
Oki Nusery, In c . f 63 6 F.2d 89 7 (2 d Cir . 1980) ( " I f th e only i n t e r e s t a t s take
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V. THE INSTANT COMPLAINTS FAIL TO STATE A CLAIM FOR CONVERSION
BoA argues t h a t P l a i n t i f f s ' convers ion c la ims a l so
1 to s t a t e a cla im convers ion, and so should be dismissed
on tha t bas i s as i l e . Defendant contends t h a t d i smi s sa l i s
app rop r i a te on tw o grounds: because Pl a i n t i f f s do not a l lege
they owned o r had a r i g h t to posses the Loans a t i s sue o r
because P l a i n t i f f s ' theory d e r iv a t s tanding I s as a
matte r o f law.
F i r s t , BoA argues t h a t even if Pl a i n t i f f s could show
t h a t BoA purchased Ocala a s s e t s when it acqui red p a r t i c i p a t i o n
r igh t s in pools of loans through a separa te se t t ransac t ions
with TBW, the convers ion cla ims f a i l because Pl a i n t i f f s do not
l ege t ha t P l a i n t i f f s eve r owned o r had a r i g h t to possess the
Loans a t i s sue . (BoA Mem. 11.)6
i s tha t of holding the defendant to a promise, th e cour t s have sa id t h a t the
p l a i n t i f f may not t ransmogr i the cont rac t claim in to one fo r t o r t . " ) ;
Wechsler v. Hunt Health Sys. , Ltd, 33 0 F. Supp. 2d 383 (S.D.N.Y. 2004);
Musicland Holding Corp. v . Wachovia Bank, N.A., 386 B.R. 428, 441 (S.D.N.Y.
2008); AD Rendon Commc'ns, Inc . v . Lumina Americas, Inc . , No. 04 civ . 8832,
2007 WL 2962591 (S.D.N.Y. Oct. 10, 2007) (co l l ec t ing cases) ;
995 F. Supp. 41 9 (S.D.N.Y. 1998 .
6 BoA's as s e r t i o n t h a t it purchased cipa t ion in te res t s " in pools of
TBW loans, not the under ly ing loans themselves as Pla in t i f f s contend (BoA
Mem. 11 n.1 ( c i t ing I I AC 24; BNP I I AC 24; S t. John Decl . , Ex. D (EPF
par t ic ipa t ion Agreement) § 8(a) & (c ) a t pp. 19 20}}, i s a ques t ion of f ac t
not su i t ed to re so lu t ion on a motion to dismiss .
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I t i s an e s se n t i a l element of a claim fo r convers ion
under both New York and Flor ida law t ha t a would-be p l a i n t i f f
must e i th e r own the sub jec t proper ty o r have a r i g h t to
immediate possess ion of i t . ? Cruickshank & Co., Ltd. v . Sorros ,
765 F.2d 20, 25 (2d Cir . 1985) (New York); Ginsberg v . Lennar
Fla . Hol Inc . , 645 So. 2d 490, 499 (Fla. Dis t . Ct. App.
1994) (Florida) i see also Admin. v.
PacifiCorp Capi t a l , In c . , 87 F.3d 44, 50 (2 d Cir . 1996);
Petr<?hawk Energy v . Law Debenture Trus t Co. of N.Y., No.
06 Civ. 9404, 2007 WL 211096, a t *4 (S.D.N.Y. Jan. 29, 2007)
("An e s se n t i a l element of convers ion i s l e g a l ownership or an
immediate super io r r igh t of possess ion to a spec i f i c t h ing . The
Pl a i n t i f f must have ownership, possess ion , or cont ro l . " ) i Global
View Ltd. Venture Capi ta l v. Great Cent. Basin Expl . , L.L.C. ,
288 F. Supp. 2d 473, 47 9 (S.D.N.Y. 2003) ( "p l a i n t i f f must
demonstra te t ha t he has l ega l tit o r an immediate super io r
r igh t of possess ion") i Wild v. Hayes, 68 A.D.3d 1412, 1414 (N.Y.
App. Div. 2009) (p l a in t i f f who "did not own, o r have possessory
r igh t s to , the proper ty when . . cause[] of ac t ion accrued"
lacked s tanding to sue fo r convers ion) ; Edwards v. Landsman, 51
7 Th e par t i es are in agreement t h a t with regard to t h i s i ssue Flor ida and
New York la w are the same and t h a t choice o f law need not be decided on th i s
motion.
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So. 3d 1208, 1213 (Fla . App. 4 Dis t . , 2011) (same under Flor ida
law) .
Defendants are cor rec t t ha t Pl a i n t i f ' Complaints do
not a l l t h a t they own or have a r i g h t to possess the loans ;
ra the r , they a s se r t t h a t they hold Notes i ssued by Ocala t ha t
were secured by Ocala ' s mortgage loans and othe r a s se t s . (DB I I
Compl. 2; BNP I I Compl. 2 .) Pl a i n t i f f s charac t ze t h e i r
i n t e re s t in the under ly ing Loans as "benef ic ia l" and s ta te t ha t
the Loans were owned by Ocala, and t ha t BoA held a secur i ty
i n t e re s t in those loans as Col la te ra l Agent fo r the b e n e f i t of
the Noteholders . (DB I I Compl. 2, 4, 7, 15 17, 23; BNP I I
Compl. 2, 4, 15 17, 23.) Indeed, a i n t i f f s do not a s se r t
tha t they s ta te a claim fo r conversion based upon t h e i r own
ownership or immediate r igh t to possess ion of the Loans. (Pl .
Opp. 20 ( " P la in t i f f s ' conversion claims are not based upon t h e i r
purpor ted ownership of the Converted Loans ." ) . ) As such, a
di rec t convers ion claim would f a i l on th i s ground. See e . . ,
Old ic Na t ' l T i t l e Ins Co . v . Abst ract . ,
790 N.Y.S.2d 143, 145 (2005).
a i n t i f f s argue t ha t the convers ion c la ims pled a re
not based upon t h e i r own purpor ted ownership of the Loans,
however, but ins tead t ha t they seek to enforce the possessory
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r igh t s tha t BoA d and holds in i t s capac i ty as c o l l a t e r a l
agent fo r the benef i t of the Pl a i n t i f f s . s . Opp. 20-24) .
The Complaints a l lege t ha t BoA exercised dominion and cont ro l
over the Loans and sa le s proceeds t he reof BNP I I Compo 31
33, 37-39; DB I I Compl. 29-32, 35-38) . Pl a i n t i f f s contend
t h a t they seek r e l i e f " in [ thei r ] own r i g h t and in the s t ead o f
Bank of America, as co l l a t e ra l agent fo r the benef i t of [ the
Pl a i n t i f f s and "demand[] judgment in [P l a in t i f ' ] favor aga ins t
Bank of America. H (BNP I I Compl. 10; DB I I Compl. 8.)
quest ion before the Court, then, i s whether
Pla in t i f f s have adequate ly pled conversion claims in what
Pl a i n t i f f s descr ibe as a der iva t ive capac i ty .
BoA a s se r t s t h a t P l a i n t i f f s ' theory of der iva t ive
s tanding I s on tw o grounds: r s t , Defendants argue t h a t
PI i f f s are not in f ac t suing d e r iv a t i v e ly , t h a t i s , to
recover asse t s o r funds to be paid to Ocala or Bank of America
in i t s capaci ty as Col la te ra l Agent. Second, Defendants a s se r t
tha t even i f a in t i f f s purpor ted to seek recovery on behal f of
Ocala, the i r claim would f a i l because no re levan t con t rac t o r
lega l au thor i ty au thor i zes them to do so.
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P l a i n t i f f s respond they have adequa te ly p led t h a t they
seek to enforce th e possessory r i g h t s t h a t BoA he ld and holds in
the Loans in i t s capac i ty as co l l a t e ra l agent (PIs . Opp. 20 . ) ,
and t h a t P l a i n t i f f s have s tanding to sue d e r iv a t i v e ly where BoA
would otherwise requi red to "sue i t s e l f " (PIs . Opp. 23) . For
t h i s propos i t ion , pI i f f s re ly on cases involving shareholder
der iva t ive ac t ions , the ___________ doc t r ine , ande s tu i cases
analogous to them o r applying t h e i r under ly ing p r i n c i p l e s .
The cases c i t ed by P l a i n t i f f s involve der iva t ive
aims in which a benef i c i a ry s t eps in to the shoes of another
and seeks a remedy, not fo r i t s e l f , bu t on the o t h e r ' s beha l f .
See 18 N.Y.2d 540, 547 (1966)
( l imi ted pa r t ne r s may bring der iva t ive s u i t s on beha l f of the
par tnersh ip) i __v__ ____ 276 N.Y. 21 5 (1937)
(al lowing shareholder der iva t ive ac t ion) i Caprer v . Nussbaum, 36
A.D.3d 176, 189 (N.Y. App. Div. 2006) (permi t t ing condominium
u n i t owners to sue on beha l f o f the condominium) i Velez v.
Feins t e in , 451 N.Y.S.2d 110, 115 (App. Div. 1982) (permi t t ing
benef i c i a ry to bring s u i t on beha l f o f the t r u s t ) .
Courts have repea ted ly he ld t h a t th e subs t an t ive r i g h t
in a s tockholder ' s der iva t ive s u i t i s t h a t of the corpora t ion ,
and not t ha t of the s tockholders . See Ross v. Bernhard , 39 6
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U.S. 531, 538-39 (1970) i Koster v . Lumbermens Mut. Cas. Co. , 330
U.S. 518, 522 23 (1947) i . Tobin, 548 F.2d 408, 411
(2 d Ci r . 1976) i Vincel v . White Motor Corp . , 52 1 F.2d 1113, 1118
(2d Cir . 1975) i v . Berndt , 466 F.2d 251, 255-56 (2d
c i r . 1972) . As th e Second C i r c u i t has expla ined:
A s tockholder ' s de r i va t i ve ac t ion c o n s i s t s
of only one c la im- the corpora te claim a ga i n s t the
a l l eged wrongdoers. The a l l eged in ju ry i n f l i c t e d
upon the corpora t ion i s regarded as a f f e c t i n g
only the co rpo ra t i on . The f ac t t h a t the in ju ry
may i nd i rec t ly harm a s tockholder by diminish ing
the value h is corpora te shares does not bestow
upon him a r i g h t to sue on h is own beha l f to
recover damages.
Papi l sky , 46 6 F.2d a t 255. In shareholder der iva t ive ac t ions it
i s the corpora t ion , not th e shareholders who br ing s u i t , t h a t
recovers . The sharehol de r i va t i ve case to which P l a i n t i f f s
poin t , Koral v . Savory, In c . , 276 N.Y. 215, no te s t h a t th e
p l a i n t i f f complained of "a l l eged wrongs done to the co rpo ra t i on
and he asks t h a t the damages fo r such wrongs be pa id to the
corpora t ion to i t s rece ive r . " Id . a t 217.
Likewise , the c e s tu i t r u s t doc t r ine permi ts a
t r u s t benef i c i a ry to a s se r t c la ims on beha l f of th e t r u s t when
th e t r u s t e e f a i l s or re fu se s to do so . See Velez r 87 A.D.2d a t
314 ("Where a claim e x i s t s in favor o f th e t r u s t (proper ly
speaking , of the t r u s t e e s in t h e i r t r u s t capac i ty ) aga ins t t h i r d
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8
persons and the t rus t ees a re under a duty to enforce t h a t cla im
and have improperly and u n j u s t i f i a b ly f a i l e d to do so , th e
b e n e f i c i a r i e s may bring a s u i t on beha l f o f the t r u s t , analogous
to s tockho l de rs ' de r i va t su i t s on beha l f o f a corpora t ion . " )
Pla in t i f f s fu r the r point to Caprer , a case ho ld ing t h a t
condominium owners may in some i ns t ances sue d e r iv a t i v e ly on the
condominium's beha l f . Caprer , 36 A.D.3d 176. In t ha t case , the
cour t pe rmi t ted the p l a i n t i f to sue fo r recovery to the
condominium, but found t h a t they lacked s tanding to a s se r t
ind iv idua l c la ims . 36 A.D.3d a t 182 86. Simi la r ly , in Rivie ra ,
the cour t extended the ces tu i doc t r ine to l imi t ed pa r t ne r s , and the p l a i n t i f f s were pe rmi t t ed to sue on beha l f
the par tne r sh ip fo r recovery to i t . Rivie ra , 18 N.Y.2d a t 547.
P l a i n t i f f s ' convers ion Complain ts s t a t e t h a t they seek
judgment in t h e i r favor . BNP I I Compl. 10i DB I I Compl. 8.)
They are not f ac t su ing der iva t ive ly , bu t seek recovery to
lthemselves. This po i n t i s conf i rmed by Pl a i n t i f f s concession
t h a t the proposed recovery here would over lap with the damages
Under the ces tu i que t r us t doc t r ine , p l a i n t i f f s must general plead
demand an d r efusa l or excuse fo r not making such demand. See Velez, 87
A.D.2d a t 31 5 ("In an ac t ion brought by a benef ic i a ry on beha l f o f the t r us t ,
the benef ic i a ry must show why he had th e r igh t to exerc i se th e power . . . to
br ing a s u i t on behalf of the t r us t . This w i l l normally require e i t h e r a
showing of a demand on th e t rus tees to br ing the su i t , and of a r efusa l so
u n ju s t i f i ab l e as to co n s t i t u t e an abuse of th e t r u s t e e ' s d i s c r e t i o n , o r a
showing t h a t s u i t should be brought and t h a t because of the t r u s t ee s '
co n f l i c t of i n t e r e s t , o r some othe r reason, it i s f u t i l e to make such a
demand.") .
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sought in the 2009 ac t ions (PIs . Opp. a t 16) I where Pl a i n t i f f s
are pla in ly suing fo r t h e i r own los ses .
In sum , although the Pl a i n t i f f s c a l l the conversion
cases "der iva t Pl a i n t i f f s are not in fac t suing fo r theI I
benef i t of any othe r en t i t y , but ins tead fo r t h e i r own los ses .
Their cla ims are not der iva t ive and , as such , the analogy to
de r iva t ive cla ims , in which a par ty may pursue a claim belonging
to someone se t does not apply here .
Pl a i n t i f f s add i t iona l ly poin t to Wireless
Telegraph Company v. Radio Corporat ion of America , 269 U.S. 459
(1926) and Manning v. Mil le r Music Corpora t ion, 174 F. Supp. 19 2
(S.D.N.Y. 1959) in suppor t of t h e i r der iva t ive theory.
In Wireless , the Supreme Court recognized
the r i g h t of an exclus ive l icensee t o jo in the patent -owner as a
co - p la in t i f f in an inf r ingement act ion , when the l a t t e r dec l ines
to jo in s u i t aga ins t a t h i rd -pa r ty in f r inge r . 269 U.S. a t 467-
75. In Manning, the cour t permi t ted composers to br ing a claim
copyr ight inf r ingement aga ins t a t h i rd par ty where the
publ i sher and copyr ight p ro p r i e to r refused to do so . To the
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9
ex ten t Independent Wireless 9or Manni upheld the l i cen see ' s o r
composers ' r igh t s in themselves to sue t h i rd par ty i n f r inge rs ,
both cases are s t ingu i shab le here . Both Independent Wireless
and Manning involved su i t e s , r espec t ly , under the pa ten t and
copyr ight ac t s , and the Courts in both cases noted the unique
re la t ionsh ip between an exclus ive l i censee and a pa ten t owner,
Independent Wireless , 269 U.S. a t 467-71, and between a composer
and a copyr ight propr ie to r , 174 F. Supp a t 195 96
(not ing " the pecu l ia r re la t ionsh ip between the au thor and h is
publ i sher") Pl a i n t i f f s have pointed to no a u th o r i t y suppor t ing
the propos ion t h a t beare r s of commercial paper , such as
themselves, may br ing su i t s fo r conversion aga ins t a c o l l a t e r a l
agent who legedly conver ts co l l a t e ra l in i s sue . Because
Pl a i n t i f f s possess cont rac t s aims aga ins t BoA, they are not
without redress , as the Court noted i n d i c t a in Independent
Wireless a l icensee would be were a pa ten tee to be an i n f r inge r .
See 269 U.S. 467-68.
Wireless the Court found t h a t were th e pa ten t owner not
joined as a p l a i n t i f f , th e ac t ion would not be maintainable under th e pa ten t
laws "but only an ac t ion in equi ty , based on th e cont rac t r igh ts of the
l icensee under the l i cense and a s t ranger ' s v io l a t i o n o f them." 269 U.S. a t
466. Accordingly, the cour t recognized " th a t t he re i s a t endency in cour t s
of equi ty to en jo in the v io l a t i o n of cont rac t r i g h t s which are invaded by
st rangers in a d i r ec t act ion by th e par ty in ju red , ins t ead of compell ing a
roundabout r e s o r t to a remedy through th e covenant , express or implied, of
the o the r cont rac t ing par ty . But such a shor t cu t , however des i r ab le , i s notpossible in a case l ike t h i s . " Here, however, t he re i s no th i rd party ,
only the cont rac t ing par t i es , and a s u i t between them i s no t roundabout bu t
ongoing in the cont rac t s cases .
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More fundamentally, in so fa r as Pla in t i f f s re ly on
these cases the propos i t ion t ha t a in t i f f s possess a d i rec t
conversion aim agains t BoA, these aims a re barred as
dupl ica t ive the cont rac t cases , see , 636 F.2d 897;
Wechsler, 330 F. Supp. 2d 383, Musicland HoI , 386 B.R. 428,
441, AD Rendon, 2007 WL 2962591; ESI, Inc . , 995 F. Supp. 419,
and fo r f a i lu re to s ta te a cla im, as Pla in t i f f s have not pled
t ha t they own o r have a r igh t to immediate possess ion of
Loans. See, Old Republic, 790 N.Y.S.2d a t 145.
Final ly , BoA as se r t s t h a t even i f Pla in t i f f s purpor ted
to recovery der iva t ive ly , t he i r claim would f a i l because no
re cont rac t o r l ega l author i ty authorizes them to do so .
The Court decl ines to reach th i s i s sue because Pla in t i f f s have
not pled a der iva t ive ac t ion .
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VI. CONCLUSION
Based upon the foregoing, BoA's motion to smiss i s
gran ted with leave to rep lead wi th in 30 days .
I t i s so ordered .
New York, NY /
August t -F' 2011 ROBERT W. SWEET
U.S.D.J .
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