In Re: RFC and RESCAP Liquidating Trust Litigation

Background

This order concerned the admissibility of MBIA’s proofs of claim against RFC’s affiliates, ResCap and GMAC Mortgage, in the related case ResCap Liquidating Trust v. Home Loan Center, Inc., Case No. 14-cv-1716. The Liquidating Trust was seeking indemnity from HLC for a portion of MBIA’s $1.45 billion allowed claim against RFC.

HLC wanted to introduce MBIA’s proofs of claim against ResCap and GMAC Mortgage and argue that those claims, and MBIA’s recoveries from those entities, showed that RFC’s settlement with MBIA was unreasonable. HLC also argued that the recoveries should reduce the amount allocated to HLC because the Trust’s damages expert had not considered them.

Parties’ Arguments

HLC argued that the evidence was relevant because MBIA’s claims involved RFC-sponsored trusts and because MBIA had recovered hundreds of millions of dollars from ResCap and GMAC Mortgage. HLC relied on Minnesota’s prohibition against double recovery and argued that MBIA could not recover damages from multiple entities for the same injury.

The Liquidating Trust argued that the evidence was irrelevant and would confuse the jury. It relied on the federal bankruptcy rule from Ivanhoe Building & Loan Association v. Orr and the Eighth Circuit’s decision in Board of Commissioners v. Hurley, under which a creditor may maintain its full claim against one liable party even while pursuing other liable parties, until the creditor receives full payment. The Trust also argued that MBIA had not received a double recovery or full satisfaction of its claims.

Ruling

The court concluded that the law precluded HLC from introducing or arguing about MBIA’s proofs of claim against ResCap and GMAC Mortgage. The court found no risk of double recovery because the record did not show that MBIA had received, or had come close to receiving, full satisfaction from RFC, ResCap, GMAC Mortgage, or their combined payments.

The court also noted that MBIA appeared to have held the three entities jointly and severally liable for the alleged misconduct, allowing MBIA to pursue the full amount of its damages claim against RFC. It therefore ruled that the Liquidating Trust could seek indemnification from HLC for a portion of MBIA’s full allowed claim against RFC, without being limited by partial recoveries MBIA may have received from ResCap or GMAC Mortgage.

The order specifically provided that HLC was precluded from arguing or introducing evidence concerning MBIA’s proofs of claim against GMAC Mortgage and ResCap, including any argument that those proofs of claim made the MBIA settlement unreasonable, because the evidence was irrelevant as a matter of law.