| MBIA Ins. Corp. v Countrywide Home Loans, Inc. |
| 2013 NY Slip Op 02175 [105 AD3d 412] |
| April 2, 2013 |
| Appellate Division, First Department |
| MBIA Insurance Corporation,Respondent-Appellant, v Countrywide Home Loans, Inc., et al.,Appellants-Respondents, et al., Defendant. |
—[*1] Quinn Emanuel Urquhart & Sullivan, LLP, New York (Philippe Z. Selendy ofcounsel), for respondent-appellant. Orrick, Herrington & Sutcliffe LLP, New York (John Ansbro and Barry S. Levin ofthe bar of the State of California, admitted pro hac vice, of counsel), for The SecuritiesIndustry and Financial Markets Association, amici curiae. Axinn, Veltrop & Harkrider LLP, New York (Donald W. Hawthorne of counsel), forThe Association of Financial Guaranty Insurers, amicus curiae.
Order, Supreme Court, New York County (Eileen Bransten, J.), entered January 3,2012, which granted plaintiff MBIA Insurance Corporation's motion for partial summaryjudgment to the extent of concluding that: (1) pursuant to Insurance Law §§3105 and 3106, plaintiff was not required to establish causation in order to prevail on itsfraud and breach of contract claims; and (2) plaintiff was entitled to rescissory damages;and denied the motion to the extent it sought a finding that the parties' repurchaseagreement required defendants Countrywide Home Loans, Inc., Countrywide SecuritiesCorp., Countrywide Financial Corp., Countrywide Home Loans Servicing, L.P. andBank of America to repurchase loans that were not in default, unanimously modified, onthe law, that portion of the motion seeking summary judgment on the claim for rescissorydamages denied, summary judgment on the issue of the repurchase obligation granted,and otherwise affirmed, without costs.
Contrary to defendants' arguments, the motion court was not required to ignore the[*2]insurer/insured nature of the relationship between theparties to the contract in favor of an across the board application of common law(see Insurance Law §§ 3105, 3106). Although the Insurance Lawprovides for "avoid[ing]" an insurance policy (or rescission), it also mentions"defeat[ing] recovery thereunder" (id. §§ 3105 [b] [1]; 3106 [b]),which, logically, means something other than rescission. Neither defendants, nor thefederal cases on which they rely (see GuideOne Specialty Mut. Ins. Co. vCongregation Adas Yereim, 593 F Supp 2d 471, 486 [ED NY 2009]; Gluck vExecutive Risk Indem., Inc., 680 F Supp 2d 406, 417 n 9 [ED NY 2010]), explainwhy "defeat[ing] recovery thereunder" cannot refer to the recovery of payments madepursuant to an insurance policy without resort to rescission. Moreover, both cases, whichare from the Eastern District of New York, are flatly contradicted by two from theSouthern District of New York (see Syncora Guar. Inc. v EMC Mtge. Corp., 874F Supp 2d 328, 337 [SD NY 2012] [citing the Supreme Court's opinion in this case (34Misc 3d 895 [Sup Ct, NY County 2012]) regarding sections 3105 and 3106 approvinglyand finding that "(t)he same reasoning applie(d) in th(at) case"]; Assured Guar. Mun.Corp. v Flagstar Bank, FSB, 892 F Supp 2d 596, 602-603 [SD NY 2012] [agreeingwith Syncora]).
The court erred, however, in granting summary judgment on the issue of rescissorydamages. Here, rescission is not warranted. Plaintiff voluntarily gave up the right to seekrescission—under any circumstances; and in fact, plaintiff does notactually seek rescission. Plaintiff should not be permitted to utilize this very rarely usedequitable tool (see Gotham Partners, L.P. v Hallwood Realty Partners, L.P., 855A2d 1059, 1072 [Del Ch 2003]) to reclaim a right it voluntarily contracted away or toobtain relief it never actually requested. Nor is rescission impracticable. Impracticabilityrefers to a scenario in which rescission is impracticable or impossible because the subjectof the contract sought to be rescinded no longer exists, or is otherwise impossible orimpractical to recover. Here, rescission is not impracticable in any relevant sense; rather,it is legally unavailable.
Finally, plaintiff is entitled to a finding that the loan need not be in default to triggerdefendants' obligation to repurchase it. There is simply nothing in the contractuallanguage which limits defendants' repurchase obligations in such a manner. The clauserequires only that "the inaccuracy [underlying the repurchase request] materially andadversely affect[ ] the interest of" plaintiff. Thus, to the extent plaintiff can prove that aloan which continues to perform "materially and adversely affect[ed]" its interest, it isentitled to have defendants repurchase that loan (see Syncora Guar. Inc., 874 FSupp 2d 328; Assured Guar. Mun. Corp., 892 F Supp 2d 596). Whether or notsuch proof is actually possible is irrelevant to plaintiff's summary judgment motion.
It also bears noting that, had these very sophisticated parties desired to have an eventof default or non-performance trigger the repurchase agreement, they certainly couldhave included such language in the contracts. They did not do so, and this Court will notdo so now "under the guise of interpreting the writing" (see Reiss v FinancialPerformance Corp., 97 NY2d 195, 199 [2001]).
As plaintiff recognizes, however, because it introduced transaction documents onlyfor the securitization known as revolving home equity loan asset backed notes, series2006-E, summary judgment on this issue is granted as to that securitization only.
We have considered the parties' remaining arguments and find them unavailing.Concur—Mazzarelli, J.P., Moskowitz, DeGrasse, Feinman and Clark, JJ.[Prior Case History: 34 Misc 3d 895.]