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New York County Clerk’s Index No. 650980/12

Supreme Court of the State of New York APPELLATE DIVISION — FIRST DEPARTMENT

ACE SECURITIES CORP., HOME EQUITY LOAN TRUST, SERIES 2006-SL2, by HSBC BANK USA, NATIONAL ASSOCIATION, solely in its capacity

as Trustee pursuant to a Pooling and Servicing Agreement, dated as of March 1, 2006,

Plaintiff-Respondent,

— against —

DB STRUCTURED PRODUCTS, INC., Defendant-Appellant.

CROSS-MOTION FOR LEAVE TO FILE BRIEF AS AMICUS CURIAE

Paul M. Smith JENNER & BLOCK LLP 1099 New York Avenue, NW Washington, DC 20001-4412 Phone: 202-639-6000 Fax: 202-639-6066 Email: [email protected]

Anthony S. Barkow JENNER & BLOCK LLP 919 Third Avenue New York, NY 10022-3908 Phone: 212-891-1600 Fax: 212-891-1699 Email: [email protected]

Attorneys for Amicus Curiae the Mortgage Bankers Association







— against —


MOTION FOR LEAVE TO FILE BRIEF AS AMICUS CURIAE

Paul M. Smith JENNER & BLOCK LLP 1099 New York Avenue, NW Washington, DC 20001-4412 Phone: 202-639-6000 Fax: 202-639-6066 Email: [email protected]

Anthony S. Barkow JENNER & BLOCK LLP 919 Third Avenue New York, NY 10022-3908 Phone: 212-891-1600 Fax: 212-891-1699 Email: [email protected]

Attorneys for Amicus Curiae the Mortgage Bankers Association

SUPREME COURT OF THE STATE OF NEW YORK APPELLATE DIVISION – FIRST DEPARTMENT ACE SECURITIES CORP., HOME EQUITY LOAN TRUST, SERIES 2006-SL2, by HSBC BANK USA, NATIONAL ASSOCIATION, solely in its capacity as Trustee pursuant to a Pooling and Servicing Agreement, dated as of March 1, 2006,


― against ― DB STRUCTURED PRODUCTS, INC.,

Defendant-Appellant.

Index No.: 650980/2012

NOTICE OF CROSS-MOTION FOR LEAVE TO FILE

BRIEF AS AMICUS CURIAE

Please take notice that upon the annexed affirmation of Paul M. Smith, dated

November 21, 2013, the Mortgage Bankers Association, by its attorneys Jenner &

Block LLP, will move this Court, at the Supreme Court, Appellate Division, First

Department, 27 Madison Avenue, New York, New York, 10010, on November 27,

2013 at 10:00 AM or as soon thereafter as counsel may be heard, for an order

permitting the Mortgage Bankers Association to serve and file a brief as amicus

curiae. This cross-motion is filed pursuant to CPLR § 2215 and 22 NYCRR §

600.2(a)(2), in response to Motion Number 2013-5893, Motion for Leave to File

Brief as Amicus Curiae in Support of Plaintiff-Respondent, filed by the

Association of Mortgage Investors in this Appeal.

Dated: New York, New York November 21, 2013

JENNER & PLOCK LLP

By: /liJmd^. Paul M. Smith 1099 New York Avenue, NW Washington, DC 20001-4412 Phone: 202-639-6000 Fax: 202-639-6066 Email: [email protected]

Anthony S. Barkow 919 Third Avenue New York, NY 10022-3908 Phone:212-891-1600 Fax: 212-891-1699 Email: [email protected]

Attorneys for Amicus Curiae Mortgage Bankers Association

mailto:[email protected]


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To: MARC E. KASOWITZ, ESQ. ([email protected]) MICHAEL M. FAY, ESQ. ([email protected]) KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 1633 Broadway New York, New York 10019 (212) 506-1700 Attorneys for Plaintiff-Respondent

THOMAS C. RISE, ESQ. ([email protected]) DAVID J. WOLL, ESQ. ([email protected]) SIMPSON THACHER & BARTLETT LLP 425 Lexington Avenue New York, NY 10017 (212) 455-2000 Attorneys for Defendant-Appellant

ROBERT SCHEEF, ESQ. ([email protected]) GAYLE KLEIN, ESQ. JOHN BRIODY, ESQ. MCKOOL SMITH One Bryant Park New York, New York 10036 (212) 402-9400 Attorneys for Amicus Curiae the Association of Mortgage Investors

SUPREME COURT OF THE STATE OF NEW YORK APPELLATE DIVISION – FIRST DEPARTMENT ACE SECURITIES CORP., HOME EQUITY LOAN TRUST, SERIES 2006-SL2, by HSBC BANK USA, NATIONAL ASSOCIATION, solely in its capacity as Trustee pursuant to a Pooling and Servicing Agreement, dated as of March 1, 2006,


― against ― DB STRUCTURED PRODUCTS, INC.,

Defendant-Appellant.

Index No.: 6509980/2012

AFFIRMATION OF PAUL M. SMITH IN SUPPORT OF CROSS-MOTION FOR LEAVE TO FILE BRIEF AS AMICUS CURIAE

PAUL M. SMITH, an attorney duly admitted to practice law before the courts

of the State of New York and not a party to this action, affirms the following to be

true under penalty of perjury pursuant to CPLR § 2106:

1. I am a partner of the law firm Jenner & Block LLP, attorneys for

amicus curiae the Mortgage Bankers Association (“MBA”). I respectfully submit

this affirmation in support of MBA’s cross-motion to file a brief as amicus curiae

in this appeal. MBA has a strong interest in the issues in this matter and can be of

special assistance to the Court. A copy of MBA’s proposed brief is attached hereto

as Exhibit A.

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2. The Mortgage Bankers Association (MBA) is the national association

representing the real estate finance industry, an industry that employs more than

280,000 people in virtually every community in the country. Headquartered in

Washington, D.C., the association works to ensure the continued strength of the

nation’s residential and commercial real estate markets; to expand homeownership

and extend access to affordable housing to all Americans. MBA promotes fair and

ethical lending practices and fosters professional excellence among real estate

finance employees through a wide range of educational programs and a variety of

publications. Its membership of over 2,200 companies includes all elements of

real estate finance: mortgage companies, mortgage brokers, commercial banks,

thrifts, Wall Street conduits, life insurance companies and others in the mortgage

lending field.

3. One of MBA’s important functions is to provide insight and analysis

on legal and other issues that are of great concern to the mortgage banking

community. This appeal raises precisely that type of issue. It asks this Court to

determine the proper application of New York State’s six-year statute of

limitations for alleged breaches of contractual representations and warranties in

residential mortgage-backed securities, or RMBS, agreements. This Court’s

resolution of this issue will affect not only the parties to this case, but the many

other parties that have entered such agreements, including MBA members. In

3

addition, this Court’s decision will affect other commercial transactions both

within and beyond the real estate finance industry.

4. The MBA brings an industry-wide perspective distinct from the

parties and the other amici. The MBA seeks leave to file a brief as amicus curiae

to present its position on the statute-of-limitations question, to provide this Court

with important background information regarding the real estate finance industry,

and to provide greater information about the potential consequences of its decision.

5. The appeal in this action is taken from a decision of the Supreme

Court New York County, issued by Justice Shirley W. Kornreich on May 13, 2013,

denying defendant-appellant’s motion to dismiss on the ground that the statute of

limitations bars plaintiff-respondent’s claims. See ACE Sec. Corp. Home Equity

Loan Trusts Series 2006-SL2 v. DB Structured Prods., Inc., 40 Misc. 3d 562 (Sup.

Ct., N.Y. Cnty. 2013). This decision is in direct conflict with the decision of

Justice O. Peter Sherwood, which granted defendant’s motion to dismiss on the

ground that the statute of limitations barred the plaintiff’s claims. See Nomura

Asset Acceptance Corp., Alternative Loan Trust, Series 2005-S4 v. Nomura Credit

& Capital, Inc., 39 Misc. 3d 1226(A), 2013 N.Y. Slip Op. 50743(U) (Sup. Ct.,

N.Y. Cnty. May 10, 2013).

6. In light of MBA’s perspective as a representative of the real estate

finance industry, MBA believes that its proposed amicus brief will be of

considerable assistance to this Court in resolving this appeal, and respectfully

requests that it be considered by this Court.

7. This cross-motion for leave is being filed in light of the motion of the

Association of Mortgage Investors (the "AMI") for leave to appear as amicus in

this matter. In its proposed brief, the AMI supports Plaintiff-Respondent's view

that a claim for breach of representation and warranties in an RMBS agreement

does not begin to run until a party to the agreement refuses to remedy the alleged

breach. The MBA, which has a broad membership that is deeply concerned with

these issues, seeks to file this brief in support of Defendant-Appellant's view that

the statute of limitations instead runs when the allegedly false representation is

made.

WHEREFORE, on behalf of proposed amicus curiae the Mortgage Bankers

Association, I respectfully request that the Court grant MBA's cross-motion for

leave to file a brief as amicus curiae.

Dated: New York, New York November 21, 2013

Paul M. Smith


Affirmation of Paul M. Smith In support of Cross-Motion for Leave to File Brief as Amicus Curiae

EXHIBIT A







— against —


BRIEF FOR AMICUS CURIAE THE MORTGAGE BANKERS ASSOCIATION

IN SUPPORT OF DEFENDANT-APPELLANT

Paul M. Smith Anthony S. Barkow JENNER & BLOCK LLP JENNER & BLOCK LLP 1099 New York Avenue, NW 919 Third Avenue Washington, DC 20001-4412 New York, New York 10022-3908 Phone: 202-639-6000 Phone: 212-891-1600 Fax: 202-639-6066 Fax: 212-891-1699 Email: [email protected] Email: [email protected] Attorneys for Amicus Curiae the Mortgage Bankers Association

i

TABLE OF CONTENTS

ARGUMENT ............................................................................................................. 5

I. The Six-Year Statute of Limitations Runs From The Date of The Representations and Warranties, Regardless When The Plaintiff Makes a Demand. ........................................................................................................... 5

II. The Six-Year Statute of Limitations Provided Ample Time For Plaintiffs To Bring Their Claims. ....................................................................................... 13

III. An Unbounded Statute of Limitations Would Have Severe Policy Consequences and Impose Undue Burdens on The Housing Market and Beyond. .......................................................................................................... 17

CONCLUSION ........................................................................................................ 20

ii

TABLE OF AUTHORITIES

Page(s) CASES

1303 Webster Ave. Realty Corp. v. Great Am. Surplus Lines Ins. Co., 63 N.Y.2d 227 (1984) ......................................................................................... 14

Bayridge Air Rights, Inc. v. Blitman Const. Corp., 80 N.Y.2d 777 (1992) ......................................................................................... 11

Continental Cas. Co. v. Stronghold Ins. Co., Ltd., 77 F.3d 16 (2d Cir. 1996) ............................................................................... 9, 10

Dolman v. U.S. Trust Co. of N.Y., 2 N.Y.2d 110 (1956) ........................................................................................... 14

Elie Int’l, Inc. v. Macy’s West Inc., 106 A.D.3d 442 (1st Dep’t 2013) ......................................................................... 9

Ely-Cruikshank Co., Inc. v. Bank of Montreal, 81 N.Y.2d 399 (1993) ............................................................................... 5, 11, 15

Flanagan v. Mount Eden Gen. Hosp., 24 N.Y.2d 427 (1969) ..................................................................................... 3, 18

Hahn Auto. Warehouse, Inc. v. Am. Zurich Ins. Co., 18 N.Y. 3d 765 (2012) .......................................................................................... 8

John J. Kassner & Co. v. City of New York, 46 N.Y.2d 544 (1979) ....................................................................................... 8, 9

Kunstsammlungen Zu Weimar v. Elicofon, 678 F.2d 1150 (2d Cir. 1982) ......................................................................... 9, 10

Lehman Bros. Holdings, Inc. v. Evergreen Moneysource Mortg. Co., 793 F. Supp. 2d 1189 (W.D. Wash. 2011) ......................................................... 16

Loral Corp. v. Goodyear Tire and Rubber Co., No. 93-Civ.-7013 (CSH), 1996 WL 38830 (S.D.N.Y. Feb. 1, 1996) ................ 11

R/S Assocs. v. N.Y. Job Dev. Auth., 98 N.Y.2d 29 (2002) ........................................................................................... 13

iii

Riddlesbarger v. Hartford Ins. Co., 74 U.S. 386 (1868) .............................................................................................. 17

Structured Mortg. Trust 1997-2 v. Daiwa Finance Corp., No. 02-CV-3232, 2003 WL 548868 (S.D.N.Y. Feb. 25, 2003) ........................... 5

W. 90th Owners Corp. v. Schlechter, 137 A.D.2d 456 (1st Dep’t 1988) ......................................................................... 6

Yeshiva Univ. v. Fidelity & Deposit Co. of Md., 116 A.D.2d 49 (1st Dep’t 1986) ......................................................................... 11

STATUTES

Cal. Civ. Proc. § 337 ................................................................................................ 14

D.C. Code § 12-301 ................................................................................................. 14

C.P.L.R. § 206 .................................................................................................. 7, 9, 10

C.P.L.R. § 213 .................................................................................................. 3, 5, 14

Gen. Oblig. Law § 17-103 ................................................................................. 11, 12

STATEMENT OF INTEREST OF AMICUS CURIAE

The Mortgage Bankers Association (MBA) is the national association

representing the real estate finance industry, an industry that employs more than

280,000 people in virtually every community in the country. Headquartered in

Washington, D.C., the association works to ensure the continued strength of the

nation’s residential and commercial real estate markets; to expand homeownership

and extend access to affordable housing to all Americans. MBA promotes fair and

ethical lending practices and fosters professional excellence among real estate

finance employees through a wide range of educational programs and a variety of

publications. Its membership of over 2,200 companies includes all elements of

real estate finance: mortgage companies, mortgage brokers, commercial banks,

thrifts, Wall Street conduits, life insurance companies and others in the mortgage

lending field.

One of MBA’s important functions is to provide insight and analysis on

legal and other issues that are of great concern to the mortgage banking

community. This appeal raises precisely that type of issue. It asks this Court to

determine the proper application of New York State’s six-year statute of

limitations for alleged breaches of contractual representations and warranties in

residential mortgage-backed securities, or RMBS, agreements. This Court’s

2

resolution of this issue will affect not only the parties to this case, but the many

other parties that have entered such agreements, including MBA members and

consumers. In addition, this Court’s decision will affect other commercial

transactions both within and beyond the real estate finance industry. Given the

potential effects of this Court’s decision, MBA has a strong interest in the

resolution of this appeal. In addition, given the diverse experience and

perspectives of MBA members throughout the real estate finance industry, MBA

believes that its views will be of assistance to this Court.

PRELIMINARY STATEMENT

As this Court is well aware, this action is just one among many currently

pending in the New York courts (and in other courts applying New York law)

based on alleged breaches of representations and warranties made in residential

mortgage backed securities (RMBS) agreements. Those representations and

warranties, concerning the characteristics of mortgage loans and the properties

securing them, were made at a particular time—in this case, the date of the

Mortgage Loan Purchase Agreement (the “MLPA”) in March 2006. Thus, the

representations and warranties were either true or false, and the contract either

complied with or breached, at that time. This case presents the question whether,

as the vast majority of courts have held, New York’s statute of limitations bars

breach claims brought more than six years after the representations and warranties

3

became effective, or whether plaintiffs—including hedge-fund investors who have

purchased certificates in troubled RMBS trusts for the purpose of bringing profit-

seeking litigation—should be allowed to override the contracts and the law to

institute lawsuits like this for decades to come.

The proper outcome of this case is clear. New York imposes a six-year

statute of limitations for breach of contract claims. CPLR § 213(2). And those

claims accrue when the breach occurs—here, when the representations and

warranties were allegedly falsely made—not when a party later learns of the

alleged breach, or when another party later refuses to remedy it. To adopt the IAS

Court’s contrary holding would eviscerate New York’s decision not to adopt a

discovery rule, as well as its refusal to allow parties to extend statutes of

limitations before a claim accrues, or for an unlimited amount of time. And it

would contravene New York’s clear rule that where, as here, a plaintiff must make

a demand before commencing an action, the statute of limitations runs from the

time when the plaintiff could make the demand, not when the plaintiff actually

chose to do so. More fundamentally, affirming the decision below would frustrate

the goal of the statute of limitations: to “giv[e] repose to human affairs.”

Flanagan v. Mount Eden Gen. Hosp., 24 N.Y.2d 427, 429 (1969).

The decision below has pernicious consequences. It means that now, more

than seven years after the representations and warranties became effective, entities

4

like DBSP cannot enjoy the “repose” envisioned by the statute of limitations.

Indeed, they will not be able to do so for many years to come. Under the IAS

Court’s ruling, mortgage originators and securitization sponsors like DBSP, among

others, may be sued at any time during the life of the loans—as long as 30 years—

and for an additional six years thereafter. That litigation will require this Court

and others to spend decades resolving stale disputes about the status of mortgage

loans and properties as they existed in 2006.

Such long-running litigation will have detrimental effects on future

transactions. If the statute of limitations is essentially limitless, entities like DBSP

will be deterred from making broad representations and warranties in future RMBS

agreements. And because they will need to keep more capital on hand to address

potential lawsuits, they will have less to lend to consumers. Affirming a limitless

statute of limitations will only make it more difficult for consumers, particularly

first-time and middle income borrowers, to get the credit they need to purchase a

home.

The detrimental effects would not be limited to the RMBS industry.

Because many commercial contracts include representations and warranties made

on the date of the agreement, along with demand requirements before a plaintiff

may bring suit, the uncertainty created by the decision below will frustrate

commercial deals in a variety of contexts.

5

This Court should avoid these problematic consequences and reverse the

decision below.

ARGUMENT

I. The Six-Year Statute of Limitations Runs From The Date of The Representations and Warranties, Regardless When The Plaintiff Makes a Demand.

Under New York law, a breach of contract action must be filed within six

years of the date it accrued, CPLR § 213(2), and a cause of action for breach of

contract accrues at the time of the breach, Ely-Cruikshank Co., Inc. v. Bank of

Montreal, 81 N.Y.2d 399, 400 (1993). That is true even if the plaintiff is not aware

of the breach at that time, and even if “no damage occurs until later.” Id.; see

Structured Mortg. Trust 1997-2 v. Daiwa Finance Corp., No. 02-CV-3232, 2003

WL 548868, at *2 (S.D.N.Y. Feb. 25, 2003) (“The New York Court of Appeals

applies an accrual-at-breach rule even when the breach and injury are not

simultaneous.”). Under New York law, “[k]nowledge of the occurrence of the

wrong on the part of the plaintiff is not necessary to start the Statute of Limitations

running in [a] contract [action].” Ely-Cruikshank Co., 81 N.Y.2d at 401 (citation

omitted).

In this case, DBSP made representations and warranties about the

characteristics of the loans and their collateral in 2006. Those representations and

warranties were false, if ever, when they were made in March 2006. As this Court

6

and others have long recognized, where a representation and warranty is false as of

the date of the agreement, the breach occurs on that date, and the statute of

limitations begins to run then. See, e.g., W. 90th Owners Corp. v. Schlechter, 137

A.D.2d 456, 458 (1st Dep’t 1988) (“The representation . . . was false when made.

Thus, the breach occurred at the time of the execution of the contract.”); Nomura,

2013 WL 2072817, at *8 (“[T]he Mortgage Representations are alleged to have

been false when made. Those representations did not arise or change over

time….The statute of limitations runs from the time of breach of the Mortgage

Representations.”). As a result, any claim filed after March 2012 is barred by the

statute of limitations.1

The court below came to a different conclusion because it fundamentally

misunderstood the contract. On the court’s view, “the mere fact that a

Representation is false does not mean that DBSP ‘breached’ the PSA” because

“DBSP has no duty to ensure that the Representations are true.” R. 15. Instead,

the court held, “DBSP does not breach the PSA and the claim for breach does not

accrue until DBSP fails to timely cure or repurchase a loan.” Id.

The court’s holding finds no support in the language of the parties’

agreements. Contrary to the court’s assertion, in the Mortgage Loan Purchase

1 To be sure, the hedge funds that initially brought this action filed their Summons with Notice on March 28, 2012. But because the funds lacked standing to maintain this action under the PSA’s “no-action” clause, the Trustee’s later substitution does not relate back to that filing, and the suit is untimely. See DBSP Br. 30-34.

7

Agreement (MLPA), DBSP agreed that “[a]ll of the representations and warranties

of the Sponsor [i.e., DBSP] under this Agreement shall be true and correct in all

material respects as of the date as of which they are made.” R. 301 (MLPA §

8(a)); see R. 290, 294 (MLPA §§ 1, 6). And the PSA requires DBSP to repurchase

a Mortgage Loan that is already in “breach … of any representation [or] warranty

… that materially and adversely affects the value of such Mortgage Loan or the

interest therein of the Certificateholders.” R. 121-22 (PSA § 2.03(a)). Given these

provisions, it is clear that a breach occurs when a false representation is made, not

when DBSP later fails to provide the remedy for that breach.

The court below cast aside the contracts’ plain language because, under the

PSA’s “sole remedy” clause, DBSP must repurchase a breaching loan (with the

requisite material and adverse effect) only after the Trustee notifies DBSP of the

breach and requests that DBSP cure or repurchase the loan in question. See R. 14-

17 (decision below); id. at 121-22 (PSA § 2.03(a)). That ruling is directly

contrary to New York law. As noted above, New York law specifically provides

that “where a demand is necessary to entitle a person to commence an action, the

time within which the action must be commenced shall be computed from the time

when the right to make the demand is complete.” CPLR § 206(a). Here, the

Trustee’s “right to make the demand [was] complete” when DBSP made its

8

representations and warranties in March 2006, because that is when, if ever, the

representations and warranties were false and the breach occurred.

Indeed, last year, the Court of Appeals similarly confirmed that a statute of

limitation is “triggered” when the party seeking relief “had the right to demand [it],

not when it actually made the demand.” Hahn Auto. Warehouse, Inc. v. Am.

Zurich Ins. Co., 18 N.Y. 3d 765, 771 (2012). There, an insurer sued for breach of

contract to recover shortfalls in the insured’s premium payments. Id. at 768-69.

The insurer had the right to demand payment as early as 18 months after the

policy’s inception, but it delayed doing so for more than a decade. Id. It argued its

claims did not accrue until it “demanded payment and [the insured] refused to

pay.” Id. at 770. The court rejected that position, holding that the insurer’s claims

accrued when it had the right to demand payment, and not when it made, and the

insured refused, a demand. “To hold otherwise would allow [the insurer] to extend

the statute of limitations indefinitely by simply failing to make a demand.” Id. at

771 (internal quotation marks omitted). So too here: the Trustee had the right to

demand cure or repurchase from the day the representations and warranties were

breached, which was, if ever, on the Closing Date. Under Hahn, the Trustee’s

claims accrued then.

To be sure, Hahn distinguished a case in which a plaintiff’s right to payment

was subject to a “condition precedent” that had to be met before the plaintiff could

9

even make a demand. Id. (distinguishing John J. Kassner & Co. v. City of New

York, 46 N.Y.2d 544 (1979)). Hahn explained that where, for example, a plaintiff

had no right to demand payment until a third party audited the claim, then the non-

fulfillment of that condition could delay accrual. Id. But because the insurer in

Hahn had the right to demand payment years earlier, the fact that the insured was

contractually obligated to pay only upon demand did not delay accrual. The same

is true here. DBSP’s bargained-for right to a pre-suit cure-or-repurchase period

does not change the fact that the Trustee had the right to demand cure or

repurchase when the breach occurred, i.e., when the representations and warranties

were allegedly falsely made. Accord Elie Int’l, Inc. v. Macy’s West Inc., 106

A.D.3d 442, 442-43 (App. Div. 1st Dep’t 2013) (although parties’ contract made

“receipt of an invoice a condition for requiring payment,” plaintiff’s claim accrued

when it had the right to send the invoice).

The Trustee contends that in several cases, the Second Circuit has adopted

its view that any pre-suit step required by the contract defers accrual. See HSBC

Br. 21-24. That is false. The cases on which the Trustee relies recognize the

“general rule” embodied in CPLR § 206, i.e., that “‘where a demand is necessary

to entitle a person to commence an action, the time within which the action must

be commenced [generally] shall be computed from the time when the right to make

the demand is complete.’” Continental Cas. Co. v. Stronghold Ins. Co., Ltd., 77

10

F.3d 16, 21 (2d Cir. 1996) (insertion in original); see Kunstsammlungen Zu

Weimar v. Elicofon, 678 F.2d 1150, 1161 (2d Cir. 1982). Those cases explain that

this rule applies to “procedural” pre-suit requirements, like the demand for

payment in Hahn, which must occur before the plaintiff can enforce “a right to

relief [that] already exists.” CPLR § 206 Practice Commentaries. But a different

rule applies to “substantive” pre-suit requirements, which occur “where a demand

is an essential element of the plaintiff’s cause of action, as in bailment cases and

replevin cases involving good-faith purchasers of stolen art.” Continental, 77 F.3d

at 21 (citations omitted); see Kunstsammlungen Zu Weimar, 678 F.2d at 1161. In

this latter class of cases, there is no breach (or tort) until the requirement is met,

and so the claim does not accrue until that time. Thus, in the reinsurance contract

at issue in Continental, notice of the plaintiff’s claim was “substantive” because

“the reinsurers were not in ‘breach’ of their contract to indemnify until they

rejected [plaintiff’s] demand (or until a reasonable time for paying the losses

elapsed).” Id. And similarly, in Kunstsammlungen Zu Weimar, a demand for

return of stolen art was “substantive” because “an innocent purchaser of stolen

goods becomes a wrongdoer only after refusing the owner’s demand for their

return.” 678 F.2d at 1161. Here, by contrast, DBSP breached the contract, if ever,

when it made allegedly untrue representations and warranties, and the Trustee’s

claims accrued at that time.

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In addition to running afoul of the precedents discussed above, the decision

below contravenes two other elements of New York limitations law. First, New

York does not apply a discovery rule to contract claims. They accrue whether or

not the plaintiff is aware of the breach, and even if the plaintiff has no actual

damages when the breach occurs. See Ely-Cruikshank Co., 81 N.Y.2d at 401-02

(noting “‘legislative judgment that occasional hardship is outweighed by the

advantage of barring stale claims’”). New York’s rejection of a discovery rule

cannot be squared with the decision below, which permits a plaintiff unilaterally to

dictate when the statute begins to run. Second, in New York, parties cannot

contract for open-ended limitations periods running from an indefinite future

event; instead, such extensions must begin and end at a date certain. See Loral

Corp. v. Goodyear Tire and Rubber Co., No. 93-Civ.-7013 (CSH), 1996 WL

38830, at *9 (S.D.N.Y. Feb. 1, 1996) (citing T & N PLC v. Fred. S. James, Co. of

New York, Inc., 29 F.3d 58, 62 (2d Cir. 1994)); Bayridge Air Rights, Inc. v.

Blitman Const. Corp., 80 N.Y.2d 777, 779-80 (1992). Nor may parties

contractually extend the limitations period at the inception of a contract; such

agreements are only permitted if made after “accrual of the cause of action.” N.Y.

Gen. Oblig. Law § 17-103(1); see Yeshiva Univ. v. Fidelity & Deposit Co. of Md.,

116 A.D.2d 49, 51-52 (App. Div. 1st Dep’t 1986). Finally, even where parties

agree to extend the limitations period following accrual, that extension is limited to

12

six years (the initial period of the statute of limitations). See N.Y. Gen. Oblig. Law

§ 17-103(1); Bayridge Air Rights, 80 N.Y.2d at 779-80. The decision below

interprets the contract to violate these principles: it reads the PSA to provide, ex

ante, that the statute of limitations will be extended until the Trustee decides to

make a demand, even if that demand comes many years after the underlying breach

occurred.2

This result is particularly surprising and unsupportable given the nature of

the repurchase protocol. That provision is designed to protect DBSP by giving it a

period of time to cure or repurchase an allegedly breaching loan having a material

and adverse effect following notification of the alleged breach. But the IAS Court

stood this provision on its head. On the Court’s view, rather than work to DBSP’s

benefit, the repurchase protocol gives the Trustee carte blanche to extend the

statute of limitations indefinitely simply by delaying its demand. That result is

contrary to the plain language of the agreement, as well as the parties’

expectations. If the contract did not include a demand requirement and

2 DBSP notes that some RMBS contracts provide that a cause of action for breach of the representations and warranties “shall accrue” upon discovery of the breach, the defendant’s failure to cure it, and the plaintiff’s demand for compliance with the parties’ agreement. See DBSP Br. 26 n.9 (citing Assured Guar. Mun. Corp. v. DB Structured Prods., Inc., 33 Misc. 3d 720, 743-44 (Sup. Ct., N.Y. Cnty. 2011)). The contract at issue here, however, does not include that language. As a result, this case does not present the question whether such language would trump the New York rule that parties cannot extend the statute of limitations at the inception of the contract. MBA respectfully submits that this Court should not consider the absent contractual language particularly given that parties with contracts containing that language are not before the Court.

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opportunity to cure, there would be no doubt that the breach claims accrued on the

effective date of the contract. The decision below provides no cogent reason to

conclude these procedural attributes, designed to protect DBSP but not to create a

precondition to accrual, should instead extend the statute of limitations, and thus

DBSP’s potential liability, for decades to come.3

II. The Six-Year Statute of Limitations Provided Ample Time For Plaintiffs To Bring Their Claims.

In holding that the statute of limitations runs from DBSP’s failure to timely

cure or repurchase an allegedly breaching loan, the IAS Court expressed concern

that a six-year statute of limitations running from the date of the false

representation would provide insufficient time for Certificateholders and the

Trustee to uncover breaches and institute actions. See R. 16 (expressing concern

that if statute ran from the date of the false representation, “the Trustee would have

an implied duty to conduct constant due diligence on the veracity of the

Representations to ensure that lies are ferreted out before the time to make a

repurchase demand expires.”). But the facts of this case, and common sense, prove

otherwise. Six years provides ample time for investors and trustees to investigate

and bring their claims. Moreover, the approach adopted by the court below—

3 Because the contract is clear, the extra-contractual statements offered by amicus curiae the Association of Mortgage Investors are irrelevant. See Br. for the Association of Mortgage Investors as Amicus Curiae In Support of Plaintiff-Respondent 37-38 (“AMI Br.”); R/S Assocs. v. N.Y. Job Dev. Auth., 98 N.Y.2d 29, 33 (2002) (refusing to consider extrinsic evidence where contract was clear on its face).

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extending the statute of limitations potentially for the life of these thirty-year

loans—would lead to the prospect of decades of burdensome litigation and produce

widespread commercial uncertainty.

More specifically, six years is a generous period of time in which to bring a

breach-of-contract claim. Compare CPLR §213(2), with, e.g., Cal. Civ. Proc. §

337 (four-year statute of limitations for breach-of-contract claims); DC Code § 12-

301(7) (three-year statute of limitations for breach-of-contract claims). And it is

presumed, of course, that parties to a contract negotiate with existing law in mind.

See, e.g., Dolman v. U.S. Trust Co. of N.Y., 2 N.Y.2d 110, 113 (1956). Thus,

contrary to the suggestion of the court below and amicus curiae AMI, the parties

did not need to expressly adopt a six-year statute of limitations. See R. 15-16;

AMI Br. 35-36; 1303 Webster Ave. Realty Corp. v. Great Am. Surplus Lines Ins.

Co., 63 N.Y.2d 227, 231 (1984). Nor could the parties reasonably have been

surprised by application of the six-year statute of limitations.

To the contrary, the facts of this case make clear that the funds that first

brought this action were well aware that the time to do so was limited, and sought

to convince the Trustee to bring an action on their behalf within six years of the

contracts’ execution. The funds were formed in late 2011, more than five years

after the securitization, and quickly acquired certificates in the Trust. See R. 355

n.2, 361-62. Shortly thereafter, on January 12, 2012, the funds wrote to the

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Trustee, alleging that 322 loans were in breach and asking that “in light of potential

expiring statute of limitations deadlines,” the Trustee “act expeditiously to request

[a tolling] agreement.” R. 359. On February 8, 2012, the Trustee forwarded this

letter to DBSP. One month later, the funds requested that the Trustee bring this

suit—a request that the Trustee denied. And on March 23, 2012—days before the

six-year anniversary of the MLPA’s date and the Closing Date—the Trustee

forwarded to DBSP another letter concerning a further 624 alleged breaches. R.

813. The funds then brought this suit six years to the day from the securitization’s

Closing Date.4 If the funds here, which purchased the certificates years after the

securitization, had ample time to bring the alleged breaches to the attention of the

Trustee, then investors who purchased certificates in the early years of the Trust

clearly had sufficient time to do so as well.5

4 That the Trustee did not seek to substitute itself as Plaintiff until after the six-year statute of limitations had expired does not suggest that a longer (or later-accruing) statute of limitations is necessary. The Summons alleges that, by the time the suit was filed, the Trustee had already refused to sue DBSP; during that time, it easily could have chosen to bring suit instead. R. 24-27 (Summons With Notice). 5 Of course, because New York does not impose a discovery rule, the result here would be no different even if certificateholders and trustees had trouble discovering breaches within the first six years. See, e.g., Ely-Cruikshank, 81 N.Y.2d at 403-04 (rejecting dissent’s argument that “permitting the statute to run when the plaintiff is unaware of the breach ‘presents difficulties,’ is harsh and ‘manifestly unfair,’ and creates ‘an obviously injustice,’” because “the ‘difficulties’ and ‘injustice conjured up the dissent do not overcome important policy considerations” and the “‘legislative judgment that … occasional hardship … is outweighed by the advantage of barring stale claims’” (quoting Hernandez v. New York City Health & Hosps. Corp., 78 N.Y.2d 687, 698 (1991))).

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Indeed, because the representations and warranties reflect the status of the

mortgage loans and the property securing them in March 2006 and earlier, it is

entirely reasonable to conclude that any breach of the representations and

warranties that “materially and adversely affects the value of such Mortgage Loan

or the interest therein of the Certificateholders” would surface early in the first six

years following the securitization. R. 121-22 (PSA § 2.03(a).) Moreover, every

month the trustee issues a report, available to all certificateholders, detailing

default statistics which makes plain any unusual pattern of early defaults. By

contrast, later defaults—occurring after a loan has paid for years—are significantly

less likely to be the product of false representations regarding conditions in 2006,

and more likely to result, for example, from subsequent changes in the borrower’s

employment or income.

In any event, even if the six-year statute were insufficient—and it is not—

the rule adopted below would cause much greater problems. Once again, the

representations and warranties pertain to the characteristics of the loans and

properties when the contract was entered into in March 2006 and earlier. But if the

decision below were affirmed, potential plaintiffs could sit on their rights, waiting

decades to seek repurchase and file suit. A statute of limitations that is only

bounded by the amount of time a plaintiff elects to take before commencing an

action is no limitations period at all. Lehman Bros. Holdings, Inc. v. Evergreen

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Moneysource Mortg. Co., 793 F. Supp. 2d 1189, 1193-94 (W.D. Wash. 2011) (“To

find otherwise would allow [the plaintiff] to essentially circumvent the statute of

limitations by indefinitely deferring its demand for payment.”); Nomura, 2013 WL

2072817, at *8 (similar).

III. An Unbounded Statute of Limitations Would Have Severe Policy Consequences and Impose Undue Burdens on The Housing Market and Beyond.

It is apparent that the decision below, if affirmed, would lead to long-

running litigation at great expense to both defendants and the courts. It is common

sense that as time wears on, documents are lost and memories fade; adjudicating

claims regarding particular characteristics of particular mortgage loans and

properties, as they stood in 2006 and earlier, would only become more time-

intensive and difficult. This is precisely the type of expensive litigation that

statutes of limitations are meant to preclude. See Riddlesbarger v. Hartford Ins.

Co., 74 U.S. 386, 390 (1868) (statutes of limitations “protect[] parties from the

prosecution of stale claims, when, by loss of evidence from death of some

witnesses, and the imperfect recollection of others, or the destruction of

documents, it might be impossible to establish the truth”).

And the growth in RMBS litigation is likely to be substantial. Rather than

simply provide existing certificateholders with additional time to bring suit (or

convince trustees to sue on their behalf), affirmance of the decision below would

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encourage additional investors, like the hedge funds here, to buy certificates in

RMBS trusts that might be trading at a small fraction of their original value for the

purpose of bringing additional put-back claims.6 Once again, the uncertainty this

would engender is contrary to the recognition underlying statutes of limitations:

that “[t]here comes a time when [a defendant] ought to be secure in his reasonable

expectation that the slate has been wiped clean of ancient obligations.” Flanagan,

24 N.Y.2d at 429 (internal quotation marks omitted).7

Such a holding would not only impose great retrospective liability for

wrongs allegedly committed years ago; it would also affect individuals’ and

institutions’ actions in the days and years ahead. The potential for extended

liability might discourage financial institutions and other organizations from

entering into securitization transactions like the one at issue here. At the very

least, it would dissuade entities like DBSP from making the type of broad

6 Amicus curiae AMI contends that the wave of RMBS litigation “has likely reached its high water mark” because, among other things, “trustees and investors have already filed litigation concerning loans in no fewer than two hundred RMBS trusts.” AMI Br. 22-25. But that number reflects only a fraction of the thousands of pools of residential loans securitized between 2003 and 2007. See Juan Carlos Calcagno et al., Methodology for Forecasting and Stress-Testing ABS and RMBS Deals 7 tbl. 3 (Moody’s Analytics Aug. 5, 2010), available at http://www.moodysanalytics.com/~/media/Insight/Economic-Analysis/Consumer-Credit/2011/ 10-05-08-Methodology-for-Forecasting-and-Stress-Testing-ABS-and-RMBS-Deals.ashx (showing that deals closed with respect to almost 10,000 pools between 2003 and 2007). 7 In attempting to mitigate the consequences of its ruling, the court below introduced yet another source of uncertainty. It stated that “[h]ad the Trustee not made its demand in 2012 and instead waited a number of years to file suit, the [statute-of-limitations] inquiry might be different.” R. 17. But the decision does not explain how the application of the statute of limitations would change depending on the Trustee’s actions, and so it leaves defendants guessing, once again, as to the longevity of plaintiffs’ claims.

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representations and warranties it made here. Businesses simply could not afford to

make such extensive representations if they could face liability—or at the very

least, litigation—regarding them for decades to come.

Similarly, an essentially endless statute of limitations would harm

consumers. As an initial matter, securitization is vital to providing housing finance

capital to consumers at competitive, broadly affordable rates. Imposing

unbounded repurchase liability would make the mortgage market less efficient,

with borrowers and lenders alike incurring greater financial and opportunity costs.

Additionally, faced with the potential for liability over a 30-year term, mortgage

banks would need to keep more capital on hand, and thus would have less to lend

to the public. Longer and more uncertain exposure also would require banks to

charge higher interest rates. And while, following the housing crisis, Congress

already incentivized banks to impose higher credit standards, the increased

exposure from a longer statute of limitations would require banks to make those

standards even more demanding. This, in turn, would further constrain consumers’

ability to obtain loans.

Nor would these problematic consequences be limited to RMBS cases.

Many commercial contracts in banking and other industries include representations

and warranties made at a date certain; many of those contracts also include a

requirement that a counterparty demand a particular remedy before bringing suit.

If this Court were to affirm the decision below, any counterparty to such a contract

could (and would) assert the right to delay the accrual of its cause of action, and

thus the running of the statute of limitations, simply by waiting to make such a

demand. The uncertainty associated with such litigation would be extremely

expensive and disruptive in many of the ways noted above.

This Court should avoid the negative consequences of such uncertainty, and

reverse the decision below.

CONCLUSION

For all of these reasons, the Supreme Court's Order should be reversed.

Dated: New York, New York

November 21, 2013

Respectfully submitted,

JENNER &-BLOCK LLP

By: faul M. Smith 1099 New York Avenue, NW Washington, DC 20001-4412 Phone: 202-639-6000 Fax: 202-639-6066 Email: [email protected]

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Anthony S. Barkow 919 Third Avenue New York, NY 10022-3908 Phone: 212-891-1600 Fax: 212-891-1699 Email: [email protected]

Attorneys for Amicus Curiae

Mortgage Bankers Association

CERTIFICATE OF COMPLIANCE

This computer generated brief was prepared using the proportionally spaced typeface 14 point Times New Roman, double-spaced. The total number of words in the brief, inclusive of point headings and footnotes and exclusive of pages containing the table of contents, table of authorities, proof of service, certificate of compliance, or any authorized addendum is 5,016.

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