Court of Appeals March Session: Arguments of Interest for March 22, 2017

The Court of Appeals’ March Session continues on March 22, 2017 with three cases on the argument docket (the Court’s case summaries can be found here). The Court will hear arguments on the following issues: (1) whether, after  convenience store robbery, exigent circumstances existed to justify the police’s warrantless entry to and search of the defendant’s residence, which was in the rear of the building across the street, and whether the failure of defendant’s attorney to object to the prosecutor’s summation comments that the defendant’s silence upon the police’s entry was evidence of his guilt deprived him of a fair trial and were not mere harmless error; (2) whether the defendant was denied his constitutional right to confront the witnesses against him where the trial court struck a police detective’s testimony that the defendant’s ex-wife had implicated him in the stabbing of the ex-wife’s boyfriend during a phone conversation with the detective, and directed the jury to disregard it, but denied the defendant’s motion for a mistrial, and whether the defendant was entitled to a Criminal Procedure Law § 330.30 hearing on allegations of juror misconduct simply because he supported the allegations with a sworn affidavit of a witness; and (3) whether the sole remedy for breach of warranties contained in a mortgage loan purchase agreement involving the sale of residential mortgage-backed securities is repurchase of the loans, or damages if the loans could not be repurchased.

No. 39     Nomura Home Equity Loan, Inc., Series 2006-FM2, by HSBC Bank USA, National Association v Nomura Credit & Capital, Inc. (and three other actions)

In this breach of contract action, the trustee of four residential mortgage-back securities trusts sought to compel Nomura to repurchase failing mortgage loans pursuant to a procedure outlined in a mortgage loan purchase agreement, or for damages in the event that repurchase was not possible. The trustee alleged that Nomura breached the agreement by making specific warranties about the quality of the loans in section 8 of the agreement, and representing in section 7 of the agreement that the agreement did not contain any untrue statements.  Upon the breach of any of the representations or warranties, the agreement provided that Nomura was obligated to either cure the breach or repurchase the affected loan at the purchase price, and that the requirement to cure or repurchase the defective loans “constitute[d] the sole remedies of the Purchaser against the Seller respecting . . . a breach of the representations . . . contained in Section 8.”

Supreme Court denied Nomura’s motion to dismiss the trustee’s claims for repurchase of the loans, but dismissed the claims for damages, holding that the repurchase obligation was the sole remedy under the agreement. The Court held that the alleged breach of the No Untrue Statements representation was governed by the sole repurchase remedy because to hold otherwise would be to render that clause meaningless.

The Appellate Division, First Department, however, reinstated the damages claims, holding that the sole remedy provision specifically limited its application to a breach of the representations contained in section 8, not to the No Untrue Statements representation contained in section 7. If the sophisticated parties to the agreement wanted to apply the sole remedy provision also to the Section 7 representations, the Court held, they knew how, but declined, to do so.  The Court of Appeals will now have to construe the agreement to determine whether damages should be available to the trustee if Nomura cannot repurchase the distressed mortgage loans.

The Appellate Division, First Department’s decision can be found here.

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