U.S.Bank National Association v. Bank of America, N.A.

Background

U.S. Bank National Association, as trustee for a commercial mortgage trust and acting through its special servicer, alleged breach-of-contract claims against Bank of America, N.A. The claims arose from representations and warranties made when LaSalle Bank National Association sold commercial mortgage loans. Bank of America later became LaSalle’s successor by merger.

The loan was secured by a mortgage on a commercial property in Indiana. A deed contained a restriction limiting the property’s use to an ambulatory surgery center and medical offices, as well as a right of first refusal held by Galen Hospital Corporation, Inc. After the property’s major tenant left, efforts to obtain a new tenant were unsuccessful. The loan later went into default, and a receiver reportedly could not secure a tenant because of the use restriction.

U.S. Bank alleged that these deed provisions violated Representation No. 8 in the Mortgage Loan Purchase Agreement. That representation concerned whether title exceptions and other recorded matters materially and adversely interfered with the property’s use, the security for the loan, the borrower’s ability to pay, or the property’s value. U.S. Bank alleged that it notified Bank of America of the violation and demanded that Bank of America cure it or repurchase the loan. Bank of America refused.

Procedural History and Arguments

The action was originally filed in the Southern District of Indiana and later transferred to the Southern District of New York. In 2016, this court granted Bank of America’s motion for judgment on the pleadings, concluding that U.S. Bank’s claims were time-barred under New York law. The Second Circuit affirmed the denial of U.S. Bank’s request to transfer the action back to Indiana but vacated the judgment on the pleadings. It directed the New York district court to treat the case as properly filed in Indiana and apply Indiana choice-of-law rules to determine timeliness.

After remand, Bank of America again moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). It argued that New York law governed and imposed a six-year limitations period for contract claims. U.S. Bank argued that Indiana’s ten-year period for written contracts applied because the parties had not expressly selected another state’s procedural law.

Court’s Analysis

The court determined that the Pooling and Servicing Agreement, rather than the Mortgage Loan Purchase Agreement, governed the choice-of-law question because U.S. Bank was a party to the Pooling and Servicing Agreement but was not a party to, and had not negotiated, the Mortgage Loan Purchase Agreement.

The Pooling and Servicing Agreement stated that it and the certificates would be interpreted under New York’s internal law and that the parties’ obligations, rights, and remedies would be determined under that law. The court held that the reference to “remedies” did not select New York’s statute of limitations. A statute of limitations is a procedural barrier that limits the time for seeking relief; it is not itself a remedy.

The court also concluded that the Mortgage Loan Purchase Agreement would not change the result even if it governed. Its provision selecting New York law, including a reference to New York General Obligations Law § 5-1401, selected New York substantive law but did not clearly displace Indiana procedural law. Under Indiana choice-of-law rules, statutes of limitations are procedural, and Indiana’s limitations period applies unless the parties expressly choose another state’s procedural law. The court rejected Bank of America’s arguments based on the commercial context of mortgage securitizations and Indiana’s “most intimate contacts” test, explaining that those arguments did not overcome Indiana’s rules concerning procedural law.

Indiana has a ten-year limitations period for claims based on written contracts. The Mortgage Loan Purchase Agreement was executed on July 25, 2007, and the last notarized signature on the Pooling and Servicing Agreement was dated July 31, 2007. Because U.S. Bank filed the action in Indiana on September 12, 2014, the court concluded that the breach-of-contract claim was timely.

Disposition

Judge Paul G. Gardephe denied Bank of America’s motion for judgment on the pleadings. The clerk was directed to terminate the motion.