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Lehman Brothers Holdings Inc. v. Universal American Mortgage Company, LLC

United States District Court, D. Colorado

October 9, 2014

LEHMAN BROTHERS HOLDINGS INC., Plaintiff,
v.
UNIVERSAL AMERICAN MORTGAGE COMPANY, LLC, Defendant.

ORDER

PHILIP A. BRIMMER, District Judge.

This matter is before the Court on the Motion to Amend Judgment Pursuant to Fed.R.Civ.P. 59 [Docket No. 122], filed by defendant Universal American Mortgage Company, LLC ("Universal"). Universal moves the Court to reconsider that portion of the July 8, 2014 Order [Docket No. 115] ("Order"), granting in part plaintiff Lehman Brothers Holdings Inc.'s ("LBHI")'s Motion for Partial Summary Judgment [Docket No. 47]. The relevant factual background is set forth in the Order and will not be recited here.

I. STANDARD OF REVIEW

Universal brings its motion pursuant to Fed R. Civ. P. 59(e), which concerns a "motion to alter or amend a judgment." However, no judgment has entered against Universal. Where a party files a motion for reconsideration prior to the entry of judgment or of a final order, Rules 59(e) and 60(b) do not apply. Houston Fearless Corp. v. Teter, 313 F.2d 91, 92 (10th Cir. 1962). Thus, Universal's motion is procedurally improper and is denied on this ground. In the alternative, even if the Court construes Universal's motion as a motion for reconsideration, the Court nevertheless determines that Universal has failed to demonstrate its entitlement to relief.

The Federal Rules of Civil Procedure do not specifically provide for motions for reconsideration. See Hatfield v. Bd. of County Comm'rs for Converse County, 52 F.3d 858, 861 (10th Cir. 1995). Instead, motions for reconsideration fall within a court's plenary power to revisit and amend interlocutory orders as justice requires. See Paramount Pictures Corp. v. Thompson Theatres, Inc., 621 F.2d 1088, 1090 (10th Cir. 1980) (citing Fed.R.Civ.P. 54(b)); see also Houston Fearless Corp., 313 F.2d at 92. However, in order to avoid the inefficiency which would attend the repeated re-adjudication of interlocutory orders, judges in this district have imposed limits on their broad discretion to revisit interlocutory orders. See, e.g., Montano v. Chao, No. 07-cv-00735-EWN-KMT, 2008 WL 4427087, at *5-6 (D. Colo. Sept. 28, 2008) (applying Rule 60(b) analysis to the reconsideration of interlocutory order); United Fire & Cas. Co. v. McCrerey & Roberts Constr. Co., No. 06-cv-00037-WYD-CBS, 2007 WL 1306484, at *1-2 (D. Colo. May 3, 2007) (applying Rule 59(e) standard to the reconsideration of the duty-to-defend order). Regardless of the analysis applied, the basic assessment tends to be the same: courts consider whether new evidence or legal authority has emerged or whether the prior ruling was clearly in error. Motions to reconsider are generally an inappropriate vehicle to advance "new arguments, or supporting facts which were available at the time of the original motion." Servants of the Paraclete v. Does, 204 F.3d 1005, 1012 (10th Cir. 2000).

II. ANALYSIS

A. Indemnification

Universal argues that the Court erred in finding that plaintiff's claim for contractual indemnification was not barred by the applicable statute of limitations. Universal argues that contractual indemnification, like the right to demand cure or repurchase, is "nothing more than a remedial provision, " id., and that remedial provisions do not constitute an independent breach of contract because they simply provide for compensatory damages. Id. at 4.

In the Order, the Court cited McDermott v. City of New York, 50 N.Y.2d 211, 215 (N.Y. 1980), for the proposition that a claim for indemnification is independent of the underlying wrong and therefore does not accrue until the loss is suffered through payment to a third party. Docket No. 115 at 21. Universal argues that McDermott is inapplicable because it applies to common law indemnification in tort actions and has "nothing to do with contractual indemnification relief." Docket No. 122 at 7-8. The Court disagrees.

Although McDermott concerned implied indemnification as opposed to contractual indemnification, [1] federal and state courts in New York have repeatedly affirmed the general rule that a cause of action for indemnification occurs when the indemnitee suffers a loss in the context of contractual indemnification. See Moscato v. City of New York (Parks Dep't), 183 A.D.2d 599, 601 (N.Y. App. 1992) ("the alleged cross claim for contractual indemnification... would not accrue until payment had been made"); see also Chrysler First Fin. Servs. Corp. of Am. v. Chicago Title Ins. Co., 156 Misc.2d 814, 820 (N.Y. Sup.Ct. 1993) ("a plaintiff suing on a mortgage title insurance policy, similar to a plaintiff in an action on any other indemnity contract ... is not entitled to indemnification prior to establishing damages) (emphasis added); Sompo Japan Ins. Co. of Am. v. Norfolk S. Ry. Co., ___ F.3d ___, 2014 WL 3844155 at *18 (2dCir. Aug. 6, 2014) ("[o]rdinarily, a claim for contractual indemnification only accrues once the indemnitee has suffered a loss, i.e., made a payment"). Universal attempts to distinguish between different types of contractual indemnification, arguing that a contractual agreement to indemnify against losses caused by a breach of contract is distinct from a contract to indemnify for future events not related to a breach. Docket No. 131 at 5-6. Universal cites no case that recognizes these distinctions, however.

Delaware law compels the same result. In LaPoint v. AmerisourceBergen Corp., 970 A.2d 185 (Del. 2009), the Delaware Supreme Court rejected the argument that an agreement to indemnify for damages resulting from a breach of contract accrues at the time of the underlying breach. The Delaware Supreme Court held that "[i]n a contract... in which one party agrees to indemnify the other for damages, including attorneys' fees, arising from that party's breach of the contract, the term indemnity' has a distinct legal meaning that permits the party seeking indemnification to bring a separate cause of action[.]... Indemnification claims do not accrue until the underlying claim is finally decided." Id. at 197-98. The rationale for treating indemnification as a separate cause of action is "that the person seeking indemnity should not have to rush in at the first possible moment but rather should be able to wait until the outcome of the underlying matter is certain." Id. at 198 (quoting Sharf v. Edgcomb Corp., 864 A.2d 909, 919 (Del. 2004)). Although LaPoint involved a case where the indemnitee was litigating the underlying breach, the principle that liability should be fixed before a cause of action for indemnification accrues applies with equal force where, as here, the indemnitee opts to avoid litigation via settlement or repurchase.

Universal cites a number of New York and Delaware cases that discuss repurchase demands and other "pre-suit cure or demand requirements, " which do not constitute separate breaches for statute of limitations purposes. See Docket No. 122 at 4-5. Universal then attempts to lump indemnification in with other pre-suit remedial provisions to argue that a contractual indemnification claim is not an independent cause of action. Id. at 5. However, none of the New York or Delaware cases cited by Universal holds that a contractual indemnification claim accrues at the same time as the underlying breach. These cases hold only that the statute of limitations is not tolled by pre-suit contractual remedies such as repurchase demands. See Structured Mortg. Trust 1997-2 v. Daiwa Finance Corp., 2003 WL 548868 at *2-3 (S.D.N.Y. Feb. 25, 2003) (holding that demand requirement did not toll the statute of limitations because plaintiff had a right to make a demand at the time of breach); see also Nomura Asset Acceptance Corp. Alternative Loan Trust, Series 2005-S4 v. Nomura Credit & Capital, Inc., 39 Misc.3d 1226(A), at *9-10 (Sup.Ct. N.Y. Cnty 2013) (holding that the statute of limitations for breach of mortgage representations does not run from "the time plaintiff elected to make demands for repurchase."); Lehman XS Trust, Series 2006-4N ex rel. U.S. Bank Nat'l Ass'n v. Greenpoint Mortg. Funding, Inc., 991 F.Supp.2d 472, 478 (S.D.N.Y. 2014) (holding that failure to comply with "cure or repurchase" obligations does not give rise to a separate breach of contract claim).

The Court is not persuaded by Universal's argument that the indemnification provision is legally indistinguishable from a repurchase remedy or other contractual demand requirements that provide for compensatory damages. The indemnification provision specifically provides that it is "in addition to any repurchase and cure obligations of [Universal]." Docket No. 7-3 at 46-47, § 711. To treat the indemnity and repurchase obligations as identical would render the indemnification provision mere surplusage. But "[a] reading of [a] contract should not render any portion meaningless." Beal Savings Bank v. Sommer, 8 N.Y.3d 318, 324 (N.Y. 2007). Given that the terms of the indemnification provision state that indemnification is "in addition to any repurchase and cure obligations, " the indemnification language cannot be ignored by the expedient of mischaracterizing it as a "remedial provision." Moreover, the indemnification provision provides for remedies beyond mere compensatory damages for a breach of contract, including "reasonable attorney's fees of [plaintiff] incurred in enforcing [Universal]'s obligations" under the agreement, and is triggered not only by a breach of the contract, but also by "any act or failure to act" that caused plaintiff damage. Docket No. 7-3 at 46-47, § 711.

In SunTrust Mortg., Inc. v. Am. P. Home Funding, LLC, 2012 WL 6561728 (E.D. Va. Dec. 14, 2012), the court considered whether an indemnification provision accrued at the time of payment in the context of a claim for breach of express warranties related to the brokering and sale of mortgages to the Federal National Mortgage Association ("Fannie Mae").[2] The defendant claimed that failure to indemnify was not an independent breach of contract because the indemnification provision "only provide[d] for indemnification upon breach of a separate provision of the [a]greement." Id. at *4. The court found that since the indemnity provision provided a remedy for conduct other than a breach of contract, the indemnity provision "establishe[d] independent bases for a breach" for statute of limitations purposes. Id. Here, as in SunTrust, the indemnification provision provides an independent basis for a breach of contract claim. The statute of ...


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