Ambac Assurance Corporation v. US Bank National Association

Background

Ambac Assurance Corporation insured certain classes of securities issued by five trusts containing residential mortgage-backed securities. U.S. Bank National Association had served as trustee for the trusts since they closed in 2005. The loans underlying the securities were originated by Countrywide Home Loans, Inc. Ambac alleged that U.S. Bank breached contractual and fiduciary duties by failing to enforce Countrywide’s obligations concerning defective loans, failing to protect the trusts after events of default, and failing to notify Ambac about an event of default. Ambac sought more than $340 million.

The parties filed cross-motions for partial summary judgment. U.S. Bank principally argued that Ambac’s claims were barred by statutes of limitations. Ambac principally argued that the contract barred or defeated several of U.S. Bank’s affirmative defenses. Summary judgment is appropriate only when there is no genuine dispute about a fact that could affect the outcome and the moving party is entitled to judgment under the law.

U.S. Bank’s Motion

The court rejected U.S. Bank’s argument that Ambac’s pre-event-of-default contract claims accrued when U.S. Bank allegedly failed to notify Countrywide about missing documents. The court treated the notice duty and the later enforcement duty as separate obligations. It held that the relevant question for accrual was when U.S. Bank allegedly failed to enforce Countrywide’s repurchase obligation, not simply when U.S. Bank allegedly failed to provide notice.

The court also held that the contract’s use of the word “enforce” was broad enough to include bringing lawsuits against Countrywide, known as putback actions, or taking steps such as entering tolling agreements to preserve those claims. The contract did not set a specific deadline for U.S. Bank to perform that enforcement duty. Under New York law, the contract therefore required performance within a reasonable time, and the court held that the reasonableness of the timing presented a fact question for a jury. U.S. Bank had not supplied evidence requiring judgment in its favor on that issue. The court denied U.S. Bank’s motion based on the asserted untimeliness of Ambac’s pre-event-of-default claims.

For Ambac’s post-event-of-default contract claims, the court likewise rejected U.S. Bank’s argument that the claims accrued shortly after U.S. Bank received reports identifying missing mortgage documents. The court held that Ambac’s theory concerned whether a prudent trustee would have acted to preserve the trusts’ assets, including by suing Countrywide before the underlying claims expired. Whether U.S. Bank acted within a reasonable time or acted as a prudent person required factual determinations and could not be resolved on summary judgment. The court therefore denied U.S. Bank’s motion based on untimeliness of those claims.

The court also rejected U.S. Bank’s challenges to Ambac’s post-event-of-default fiduciary-duty claims. It held that the claim at issue was based on U.S. Bank’s alleged failure to notify Ambac that an event of default had occurred, rather than merely on the failure to bring putback actions. Evidence showed that a servicer failed to meet an obligation on March 20, 2014, that U.S. Bank had a contractual duty to notify Ambac within 60 days, and that no notice was sent. The court held that this theory was timely. It also declined to grant summary judgment based on Ambac’s interrogatory response because the record did not clearly establish that Ambac had waived the claim.

The court rejected U.S. Bank’s renewed argument that the economic-loss doctrine barred Ambac’s fiduciary-duty claims because they sought the same damages as the contract claims. It relied in part on the earlier ruling in this case, which held that the contract and fiduciary-duty theories could proceed together when they arose from distinct duties. The court also denied U.S. Bank’s motion concerning pre-event-of-default representation-and-warranty claims because Ambac clarified that it was not asserting those claims; its pre-event-of-default claims concerned missing or defective mortgage documents instead. The court stated that the parties’ stipulation would govern the construction of a contract provision concerning U.S. Bank’s duty to investigate.

Ambac’s Motion

Ambac sought summary judgment on U.S. Bank’s defenses concerning whether breaches by Countrywide Home Loans could trigger an event of default. U.S. Bank argued that the contract mistakenly used “seller” where it should have used “servicer.” The court held that U.S. Bank’s mutual-mistake defense was time-barred because it sought, in substance, to reform the contract based on an alleged mistake that occurred many years earlier.

The court also granted Ambac’s motion against U.S. Bank’s equitable-estoppel and waiver defenses and struck those defenses. The court held that no reasonable jury could find the required concealment, intent to induce reliance, knowledge, detrimental reliance, or clear intent to waive based on the facts presented. The court emphasized that U.S. Bank had access to the relevant contracts and information and that Ambac’s failure to assert its legal interpretation earlier did not establish estoppel or waiver.

Disposition and Remaining Issue

The court granted in part and denied in part U.S. Bank’s motion for partial summary judgment and granted in full Ambac’s motion for partial summary judgment. The case was to proceed to completion of expert discovery and then trial. The court specifically left open whether the contract provision using the term “seller” was ambiguous about which entity it referred to. The clerk was directed to terminate the pending motions.