Ambac Assurance Corporation v. US Bank National Association

Background

U.S. Bank moved under Federal Rule of Civil Procedure 15(a) for permission to amend its answer. It sought to add two affirmative defenses based on mutual mistake concerning alleged errors in reconstituting the Master Mortgage Loan Purchase and Servicing Agreement and amending the related Servicing Addendum. U.S. Bank argued that the written agreements did not reflect the parties’ intentions because of those errors. It also sought to supplement its already-asserted estoppel defense with facts learned during discovery.

Ambac opposed the motion as to the mutual-mistake defenses. It argued that the defenses were futile, untimely, and prejudicial. Ambac asserted that a mutual-mistake theory would require reformation, which it said was time-barred under New York law. It also argued that the proposed defenses would require costly and time-consuming third-party discovery. Ambac did not claim that U.S. Bank acted in bad faith. At a conference, Ambac conceded that it would not be prejudiced by supplementing the estoppel defense and indicated that it would not continue opposing that portion of the motion.

Legal standard

The court explained that Rule 15(a) generally requires leave to amend a pleading when justice so requires. A court may deny leave because of bad faith, futility, undue delay, or prejudice to the opposing party. An amendment is futile when the proposed defense could not survive on its face or lacks a sound legal basis; the party seeking amendment does not have to prove at that stage that the defense will ultimately prevail at trial.

Court’s analysis

The court rejected Ambac’s futility argument. It noted that, under New York law, courts may in some circumstances interpret a contract by transporting, rejecting, or supplying words when an absurdity has been identified or the contract would otherwise be unenforceable, even without a separate reformation claim. The court found that U.S. Bank had identified specific alleged errors in the contract documents and concluded that it could not determine at that stage whether the written agreements were commercially unreasonable or absurd.

The court also rejected the undue-delay argument. Although U.S. Bank acknowledged that it probably could have pleaded the defenses earlier, the court stated that defendants are not required to plead every known affirmative defense in their first answer. Delay alone, without bad faith or undue prejudice, was not enough to deny amendment.

The court found no undue prejudice to Ambac. U.S. Bank filed its motion before the fact-discovery deadline, and the parties had represented that they would seek an extension of fact discovery regardless of the motion’s outcome. The court stated that the parties could request additional time if needed to address the new defenses.

As to estoppel, Ambac conceded that supplementing the existing defense with discovery facts would not substantially prejudice it. The court therefore granted that part of U.S. Bank’s request as well.

Disposition

The court granted U.S. Bank’s motion to amend its answer. It permitted U.S. Bank to add the two mutual-mistake affirmative defenses and supplement its estoppel defense. The court ordered the parties to submit a proposed revised scheduling order by January 17, 2020. The order addressed only whether the defenses could be added; it did not decide the defenses’ ultimate merits.