In Re: RFC and RESCAP Liquidating Trust Litigation

Background

ResCap Liquidating Trust and Home Loan Center, Inc. (HLC) were preparing for trial. Together, they filed 19 motions in limine—requests to limit or exclude evidence and arguments before the jury. This omnibus order resolved most of those motions and deferred some issues until trial or until a party made an appropriate proffer, meaning a formal offer of the proposed evidence.

The court relied on earlier rulings concerning summary judgment and expert testimony. Among other things, those earlier rulings held that ResCap could seek indemnification for the full value of allowed bankruptcy claims, that ResCap could use statistical sampling, and that ResCap had sole discretion under the Client Guide to identify HLC’s breaches of representations and warranties.

ResCap’s Motions

1. Motion No. 1 — GRANTED. HLC could not argue that allowed claims had a value different from their face amount under the bankruptcy Plan and findings, that RFC’s creditors’ claims were fully satisfied, or that the identity or later trading of Liquidating Trust units affected HLC’s liability. The court would instead give the jury a neutral statement explaining the Trust’s relationship to RFC, its unitholders, and RFC’s former creditors.

2. Motion No. 2 — GRANTED IN PART and DEFERRED IN PART. Because allegations of misconduct, without proof of intentional wrongdoing, were indemnifiable, HLC could not use complaints, proofs of claim, expert reports, or other filings to allocate losses between indemnifiable and non-indemnifiable claims. The court deferred the broader question whether other litigation documents could be admitted to show information available to RFC when it entered the settlements.

3. Motion No. 3 — GRANTED IN PART and DEFERRED IN PART. HLC could not present evidence about Quinn Emanuel’s prior representation of parties against RFC, GMAC, or other ResCap entities. The court deferred specific issues concerning Jeffrey Lipps, noting that if he testified, HLC could use inconsistent prior statements to challenge him.

4. Motion No. 4 — GRANTED. The jury would be told that the bankruptcy settlements occurred during a confidential mediation and that the parties could not present evidence about what happened during that mediation. HLC could not argue that ResCap caused prejudice by blocking discovery or that the jury should draw conclusions from the unavailable mediation materials. The court did not bar ResCap’s evidence about subjective claim valuations or pre-mediation statements.

5. Motion No. 5 — DENIED AS MOOT. The court held that evidence challenging RFC’s re-underwriting-based identification of HLC’s breaches was irrelevant in light of the sole-discretion summary-judgment ruling.

6. Motion No. 6 — DENIED AS MOOT. To the extent the proposed cross-examination of ResCap’s appraisal expert concerned re-underwriting evidence that challenged ResCap’s sole discretion to identify breaches, it was irrelevant under the court’s prior ruling.

7. Motion No. 7 — GRANTED. HLC could cross-examine ResCap’s sampling expert about his methodology and the sample’s margin of error, but it could not argue that it would have been economically feasible to re-underwrite every loan. The court found that proposed line of questioning misleading, confusing, unfairly prejudicial, and likely to cause unnecessary trial delays.

8. Motion No. 8 — DEFERRED. Evidence about Homecomings was irrelevant to breach and causation, but HLC could question the sampling expert about Homecomings’ data as it related to damages. HLC had to make a proffer before presenting Homecomings-related evidence or argument to the jury.

9. Motion No. 9 — GRANTED. HLC could not introduce the specified consent orders or other non-bankruptcy lawsuits and settlements involving RFC, Ocwen, or their affiliates. The court found that the risk of unfair prejudice and a mini-trial on unrelated proceedings substantially outweighed the evidence’s value. HLC could still question the reliability of data used by ResCap’s damages expert.

10. Motion No. 10 — DENIED AS MOOT. The court agreed that the parties could not ask the jury to reconsider the court’s legal rulings, but found no further ruling necessary because the summary-judgment and expert-evidence orders had already been issued.

HLC’s Motions

1. Motion No. 1 — GRANTED IN PART and DENIED IN PART. ResCap could present the amount of allowed claims established by the bankruptcy court for their legal effect and could tell the jury that the settlements occurred under federal judicial supervision and were approved by the Bankruptcy Court. Those facts could be considered as objective indications of good faith. The court did not permit the bankruptcy findings to be used more broadly to prove the settlements’ reasonableness or the strength of the underlying claims.

2. Motion No. 2 — DENIED. ResCap could present evidence about its claim valuations, pre-mediation statements, and the fact that the settlements occurred in mediation. The court’s restrictions on discussing mediation confidentiality remained in place.

3. Motion No. 3 — DENIED. ResCap could describe the beneficiaries of the action only through the court’s neutral statement concerning the Trust’s unitholders, former RFC creditors, and others who received or purchased units.

4. Motion No. 4 — DENIED AS MOOT. The court adopted the parties’ compromise: ResCap could not discuss the identities of investors in the relevant RMBS Trusts, and HLC could not argue that current Trust unitholders were not RFC’s creditors because units had been traded. ResCap could still refer to the RMBS Trusts as bankruptcy claimants or Trust unitholders, subject to the court’s other rulings.

5. Motion No. 5 — GRANTED IN PART and DENIED AS MOOT IN PART. ResCap could not argue that HLC’s loan sales contributed to the financial crisis, caused job losses, or harmed the United States or Minnesota economy. HLC was similarly barred from arguing that RFC or Homecomings contributed to the financial crisis or that the crisis caused losses on HLC’s loans. ResCap also could not argue that HLC drove RFC out of business or contributed to RFC’s demise. The court would instead tell the jury that RFC and its affiliates entered bankruptcy after being sued by residential mortgage-backed securities trusts and monoline insurers.

6. Motion No. 6 — DENIED. The jury could consider expert analyses based on employment-status and income information obtained through later employer subpoenas because the underlying information was available to the parties when the bankruptcy settlements were reached.

7. Motion No. 7 — GRANTED IN PART and DENIED IN PART. ResCap could introduce the appraiser petition as relevant state-of-mind evidence for six appraisers allegedly responsible for materially inflated appraisals, if it supplied a proper witness and foundation. ResCap could not introduce evidence that appraisers had faced disciplinary action unrelated to the appraisals at issue.

8. Motion No. 8 — DENIED WITHOUT PREJUDICE. The court would address any improper expert vouching or parroting during trial rather than excluding the evidence in advance.

9. Motion No. 9 — DENIED. ResCap could present testimony that the Bankruptcy Court approved an allocation of $96 million in allowed claims to non-indemnifiable servicing claims, because the evidence reflected the legal effect of that approval. The court would not allow speculative evidence that the bankruptcy judge’s finding was imprecise or contradicted by a supplemental terms sheet.

Disposition and significance

Judge Nelson’s order managed the evidence for the forthcoming trial; it did not resolve whether ResCap or HLC would prevail on the underlying contractual indemnity claim. The order therefore classified the matter as a procedural order concerning trial evidence and related pretrial issues.