ResCap Liquidating Trust v. LendingTree, LLC

Background

ResCap Liquidating Trust sought declaratory relief making LendingTree, LLC and LendingTree, Inc. liable for a $68,484,502.06 judgment previously entered against Home Loan Center, Inc. (HLC). That earlier judgment followed litigation concerning allegedly defective mortgage loans HLC sold to Residential Funding Company, ResCap’s predecessor in interest. HLC later filed for bankruptcy.

ResCap alleged that LendingTree, LLC acquired HLC, that LendingTree, Inc. became the parent of LendingTree, LLC, and that the LendingTree entities controlled HLC’s business. ResCap asserted three theories: LendingTree, Inc. expressly assumed HLC’s liabilities under a 2008 spin-off agreement; the defendants were HLC’s alter egos; and HLC acted as the defendants’ agent when it originated and sold the loans.

The defendants moved to dismiss Counts One and Three for lack of personal jurisdiction and failure to state a claim. They also argued that Count Three was untimely. In the alternative, they asked the court to compel arbitration of Count One and stay the rest of the case. They did not seek dismissal of Count Two.

Personal jurisdiction

The court held that it had personal jurisdiction over the defendants at the pleading stage. LendingTree, LLC had registered an agent for service of process in Minnesota. Under controlling Eighth Circuit precedent, the court held that this registration constituted consent to Minnesota’s general personal jurisdiction over LendingTree, LLC.

The court also held that the forum-selection clause in the client contract between RFC and HLC could apply to the defendants. ResCap plausibly alleged that the defendants were closely related to HLC and that the client contract was closely related to the claims. The court further held that ResCap plausibly alleged a sufficient degree of control and domination for the court to consider HLC’s Minnesota contacts when evaluating jurisdiction over the defendants.

The court identified allegations that the defendants wholly owned the entities below them, controlled HLC’s business, directed HLC to operate under the “LendingTree Loans” name, supplied or guaranteed financing, directed HLC to originate and sell loans, and participated in the underlying litigation. The court also held that the defendants’ own alleged contacts with Minnesota supported specific personal jurisdiction over Count Three.

Count One: express assumption of liabilities

The court held that Count One was a legally cognizable and plausible successor-liability claim. ResCap alleged that the spin-off agreement required LendingTree, Inc. to assume the liabilities of the relevant business group, including liabilities of its subsidiaries, and that the assumption covered liabilities arising before or after the agreement’s effective date.

The court rejected the defendants’ argument that ResCap could not proceed because it had not alleged a transfer of HLC’s assets. Although asset sales are a common setting for successor-liability claims, the court held that an express contractual assumption of liabilities can support such a claim even when the predecessor remains in existence. The court also rejected the argument that ResCap had to be an intended third-party beneficiary of the spin-off agreement. ResCap was relying on the agreement to show an assumption of liabilities, not suing as a third-party beneficiary to enforce the agreement itself.

The court therefore denied dismissal of Count One under Rule 12(b)(6), the rule allowing dismissal for failure to state a legally sufficient claim.

Count Three: agency theory

The court held that ResCap plausibly alleged that HLC acted as the defendants’ agent. The court described the relevant agency elements as consent, action by the agent on the principal’s behalf, and the principal’s control over the agent.

The allegations included that LendingTree, Inc. owned LendingTree, LLC, which owned HLC; the defendants operated HLC’s lending business through HLC; HLC sold more than 6,200 loans to RFC; the defendants funded HLC and controlled its financing; the defendants directed HLC’s branding, sourcing, and sale of loans; and the same individual managed the entities. The court concluded that these allegations plausibly showed that the defendants gave HLC actual implied authority to act for them and controlled not only what HLC did but how it did it.

The court also rejected the defendants’ due-process and preclusion arguments at this stage. It explained that the defendants were not being added to the earlier judgment against HLC. Instead, ResCap sought a separate judgment declaring the defendants liable for that judgment. The court held that the alleged principal-agent relationship could create the required legal connection, or privity, between the defendants and HLC for purposes of applying issues decided in the earlier case. ResCap also plausibly alleged that the defendants had a full and fair opportunity to participate in the HLC litigation because they allegedly controlled HLC, guaranteed its legal expenses, and participated in litigation decisions.

The court held that Count Three was not time-barred. It treated the claim as an equitable action to enforce an existing judgment and applied Minnesota’s ten-year limitations period for actions upon judgments. Because the HLC judgment was entered on June 21, 2019, and ResCap filed this case on August 27, 2019, the claim was timely. The court added that the claim would also have been timely under the six-year period for contract claims, based on the court’s prior determination that the underlying indemnification claims accrued no earlier than December 2013.

Arbitration and stay

The court denied the request to compel arbitration of Count One. It interpreted the spin-off agreement’s arbitration clause as narrow and limited to disputes between the agreement’s defined parties. ResCap was not one of those parties, had not signed the agreement, and was not a third-party beneficiary. The court also found no direct benefit to ResCap that would justify requiring arbitration through estoppel, and found no other basis for binding ResCap to the arbitration clause.

Because arbitration did not apply, the court denied the request to stay the case as moot. The court also stated that, even if arbitration had applied to Count One, it would have declined to stay the entire action because doing so would materially prejudice ResCap after its lengthy litigation against HLC.

Disposition

The court denied the defendants’ Motion to Dismiss for Lack of Jurisdiction, Failure to State a Claim, or in the Alternative, to Compel Arbitration. The ruling allowed Counts One and Three to proceed past the motion-to-dismiss stage; it did not finally determine whether the defendants are liable for the HLC judgment.