Court of Appeals November Session: Arguments of Interest for November 14, 2017

The Court of Appeals returns to Albany for a one-week November Session beginning on Tuesday, November 14, 2017. The Court will hear argument in four cases today.

First on the argument calendar are two cases involving questions about how class actions should work in New York.  In the first, the Court is asked whether putative class members were entitled to notice of discontinuance of the action under CPLR 908 despite that the time for the individual plaintiff to move for class certification had expired under CPLR 902. In the second case, the Court will hear arguments on whether the notice provision of CPLR 908 applies to an action pleaded as a class action but dismissed prior to class certification and whether notice must be provided to the putative class of an impending dismissal.

Next up is a criminal case asking whether a criminal defendant’s waiver of the right to appeal was invalid and whether the denial of the defendant’s requests for a lawyer during pretrial proceedings concerning a DNA test violated the defendant’s right to counsel.  Finally, the Court will hear argument in a residential mortgage-backed securities case involving whether a “sole remedy” provision requiring the seller of residential mortgage-backed securities to cure or repurchase mortgage loans that don’t conform to representations and warranties prohibits the buyers from seeking money damages for breach of a contractual provision providing that the contract contains no untrue statements.

No. 39    Nomura Home Equity Loan, Inc. v Nomura Credit & Capital, Inc. 

Back for a second time, the Court of Appeals will hear reargument in Nomura Home Equity Loan, Inc. today.  In this breach of contract action, the trustee of four residential mortgage-backed 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.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: