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EMC Mortgage, LLC v. Century Mortgage Co.

United States District Court, W.D. Kentucky, Louisville Division

September 14, 2017



          Greg N. Stivers, United States District Court Judge

         This matter is before the Court on Defendant's Motion to Dismiss (DN 20) and Plaintiff's Motion for Oral Argument (DN 22). The motions are ripe for adjudication. For the reasons outlined below, the motions are DENIED.


         Defendant Century Mortgage Company (“Century”) is a privately-held mortgage bank and Kentucky corporation headquartered in Louisville, Kentucky. (Compl. ¶ 10, DN 1). Century's primary business involves the origination and sale of residential mortgage loans. (Compl. ¶ 10). Plaintiff EMC Mortgage, LLC (“EMC”) is a Delaware corporation with its principal place of business located in Lewisville, Texas. (Compl. ¶ 9).

         On February 1, 2005, Century and EMC entered into a Mortgage Loan Purchase Agreement (“MLPA”) to purchase a number of loans, including the eleven loans at issue in this litigation. (Compl. ¶¶ 2, 7, 30; Compl. Ex. B, DN 5). The MLPA incorporated the Seller Guide, which sets forth numerous representations and warranties concerning the characteristics of the loans and the manner in which they originated. (Compl. ¶¶ 2, 3, 14; Compl. Ex. A-1, DN 1-2 [hereinafter MLPA]; Compl. Ex. A-2, DN 1-3 [hereinafter Seller Guide]). In the event of discovery of a breach of one of more of the representations and warranties, the Seller Guide required Century to cure the breach or, failing that, to repurchase the loans from EMC. (Seller Guide 13). Both the Seller Guide and the MLPA also include indemnification provisions in the event of a breach. (Seller Guide 13; MLPA 4).

         After purchasing the at-issue loans from Century, EMC either securitized or sold the loans to third parties, including residential mortgage backed securities (“RMBS”) trusts[1] and government sponsored entities such as Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (collectively “GSEs”), pursuant to pooling and servicing agreements and/or mortgage loan purchase agreements (“the Third Party Agreements”). (Compl. ¶¶ 4, 5). Under the Third Party Agreements, EMC made representations and warranties to the Trusts and GSEs about the Century loans that were materially identical to the representations and warranties Century made to EMC. (Compl. ¶¶ 26-27). Furthermore, the Third Party Agreements obligated EMC to repurchase any defective loan or to compensate the Trust or GSEs for losses arising from any breach of warranty or misrepresentation. (Compl. ¶¶ 5, 28).

         Subsequent to the third-party sales, EMC became aware of alleged breaches of the loan-level representations and warranties, which triggered its potential obligations and liability to the Third-Party Purchasers. (Compl. ¶ 6). EMC then repurchased the at-issue mortgage loans or compensated the Third Parties for their losses. (Compl. ¶ 6).

         EMC alleges that its breaches under the Third-Party Agreements also constituted breaches of the corresponding representations and warranties made by Century to EMC. (Compl. ¶¶ 6, 31). Compensating or repurchasing the loans from the third parties led EMC to incur losses in excess of $1 million. (Compl. ¶¶ 6-7, 31-32). According to EMC, Century is required per the indemnification provision in the MLPA and Seller Guide to compensate EMC for these losses. (Compl. ¶ 33). Between January 2013 and August 2015, EMC notified Century of its obligation to indemnify EMC for the losses it incurred in connection with the subject loans, and Century has allegedly failed to honor those demands. (Compl. ¶ 34, Compl. Ex. B). Consequently, EMC filed this action seeking indemnity for its losses incurred under the various agreements. (Compl. ¶¶ 36-42).


         This Court has “original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75, 000, exclusive of interest and costs, and is between . . . the citizens of different States . . . .” 28 U.S.C. § 1332(a)(1).


         A. Defendant's Motion to Dismiss

         A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief, ” and is subject to dismissal if it “fail[s] to state a claim upon which relief can be granted.” Fed.R.Civ.P. 8(a)(2); Fed. R. Civ. P 12(b)(6). When considering a motion to dismiss, courts must presume all factual allegations in the complaint to be true and make all reasonable inferences in favor of the non-moving party. Total Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008) (citing Great Lakes Steel v. Deggendorf, 716 F.2d 1101, 1105 (6th Cir. 1983)). To survive a motion to dismiss under Rule 12(b)(6), the plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Traverse Bay Area Intermediate Sch. Dist. v. Mich. Dep't of Educ., 615 F.3d 622, 627 (6th Cir. 2010) (internal quotation marks omitted) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim becomes plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).

         In moving to dismiss, Century maintains that EMC's indemnity claim is barred by the applicable statute of limitations. As the Sixth Circuit has noted, however, “before discovery, [a plaintiff] [has] no duty to ‘respond to a motion to dismiss with affirmative matter raising a triable issue of fact on an affirmative defense.'” Michalak v. LVNV Funding, LLC, 604 F. App'x 492, 494 (6th ...

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