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FOR THE DISTRICT OF MINNESOTA
RESIDENTIAL FUNDING COMPANY,
v. No. 0:13-cv-03528 (ADM/TNL)
NATIONAL BANK OF KANSAS CITY,
DEFENDANT NATIONAL BANK OF KANSAS CITY’S MEMORANDUM
OF LAW IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT
OR TO DISMISS THE FIRST AMENDED COMPLAINT
Defendant National Bank of Kansas City (“NBKC”) submits its
memorandum of law in support of its motion for summary judgment
pursuant to Fed. R. Civ. P. 56, or in the alternative, its motion to dismiss
pursuant to Fed. R. Civ. P. 12(b)(6). NBKC is entitled to judgment as a
matter of law because Plaintiff Residential Funding Corporation’s (“RFC”)
First Amended Complaint is untimely. Alternatively, RFC’s Complaint
should be dismissed with prejudice for failing to state a claim for relief.
NBKC last sold residential mortgage loans to RFC in April, 2005
pursuant to a written contract between the parties. RFC no longer exists as a
functioning entity; plaintiff’s counsel admits that pursuant to RFC’s
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bankruptcy plan a trust has acquired RFC’s assets and is the proper plaintiff
in this action. (RFC Memo. in support of Mot. to Transfer at fn. 1, Dkt. No.
RFC filed this suit on December 16, 2013, alleging claims for breach of
contract and indemnification. Notably, RFC filed suit against NBKC on the
same day it filed suit against 66 other defendants, using nearly identical
generic and conclusory complaints that fail to state plausible breach of
contract claims and fail to put any of the defendants on proper notice.
After many of the defendants, including NBKC, filed motions to
dismiss, RFC responded by filing motions to transfer the dozens of cases it
filed in Minnesota to the Southern District of New York, to be referred to a
bankruptcy judge. NBKC opposes transfer because, inter alia the Bankruptcy
Court does not have jurisdiction over RFC’s untimely claims against NBKC,
and RFC’s Minnesota forum selection clause precludes transfer. In response
to NBKC’s motion for summary judgment or to dismiss, RFC filed a one count
First Amended Complaint alleging a claim for indemnification only.
RFC commenced suit more than eight years after NBKC allegedly
breached a contract purportedly between RFC and NBKC’s predecessor.
NBKC is entitled to judgment as a matter of law because RFC’s
indemnification claim is merely a dressed-up breach of contract claim that is
NBKC seeks judgment against the proper plaintiff, but continues to refer to
plaintiff as RFC for consistency, and until RFC moves to substitute plaintiffs.
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time-barred under Minnesota law, which applies to this contract.
Alternatively, NBKC seeks dismissal of RFC’s Complaint for failure to
state a plausible claim for relief under Federal Rule of Civil Procedure 8 and
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). The Complaint is
untimely on its face and fails to apprise NBKC of the specific alleged
breaches or how any resulting damages were caused by any alleged breaches.
NBKC is a nationally chartered full service bank that provides personal
and business banking products to its customers. (Declaration of NBKC CFO
Eric Garretson at ¶ 6, attached as Exhibit A). NBKC last sold a residential
mortgage loan to RFC on April 27, 2005, pursuant to a contract between
NBKC’s predecessor, Horizon National Bank, and Residential Funding
(Id. at ¶¶ 7, 10, 39). The Client Contract (“Contract”),
dated February 13, 2001, governed NBKC’s sale of residential mortgage loans
to RFC. (Id. at ¶ 7; Contract attached to Am. Compl., Dkt. No. 28-1).
Contract purports to incorporate certain representations and warranties
(“R&W’s”) contained in RFC’s Client Guide (Contract at ¶¶ 1, 4), and the
For purposes of this dispositive motion NBKC presumes Plaintiff has
standing to pursue these claims on behalf of Residential Funding
Corporation, and uses “RFC” to refer to both.
For purposes of this dispositive motion NBKC presumes it is the successor
to the Contract between RFC and Horizon Bank, but NBKC reserves the
right to dispute this point.
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Client Guide purports to define what constitutes a breach of the Contract by
NBKC (Client Guide at § A208, attached to Am. Compl., Dkt. No. 28-2).
RFC’s Client Guide explained that RFC intended to re-sell the
residential mortgage loans NBKC sold RFC:
(II) Loan Securitization
The Client recognizes that it is GMAC-RFC’s intent to securitize
some or all of the Loans sold to GMAC-RFC by the Client. The
Client agrees to provide GMAC-RFC with all such information
concerning the Client generally and, if applicable, the Client’s
servicing experience, as may be reasonably requested by GMAC-
RFC for inclusion in a prospectus or private placement
memorandum published in connect ion with such securitization.
In addition, the Client will cooperate in a similar manner with
GMAC-RFC in connect ion with any whole Loan sale or other
disposition of any Loan sold to GMAC-RFC by the Client.
Client Guide § A202(II).
RFC pled NBKC was “well aware” that after NBKC sold it a loan
RFC would either pool loans into a “special-purpose securitization
Trust” or sell “pools of loans to whole loan investors.” (Am. Compl. ¶¶
21-22). RFC pled that it made its own R&W’s regarding the loans it
sold to the trusts and whole loan investors. (Id. at ¶¶ 25, 36). RFC
admitted that it would breach the R&W’s it gave to trusts and investors
if it re-sold a loan that breached the Client Guide R&W’s when NBKC
sold the loan to RFC. (Am. Compl. ¶¶ 25, 36).
RFC filed for bankruptcy on May 14, 2012, blaming a host of other
entities for causing its downfall. (Am. Compl. ¶¶ 1-2, 7-8). The bankruptcy
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plan approved by the court on December 13, 2013 directed RFC’s assets and
causes of action to be transferred to the RESCAP Liquidating Trust (“RFC
Trust”), effective December 17, 2013. (Order Confirming Plan, Doc. No. 6065-
1 in BR 12-12019 (S.D.N.Y. Dec. 13, 2013)). RFC filed this suit on December
15, 2013. (Doc. No. 1 in No. 13-cv-3528).
RFC contends that NBKC breached the Contract when it sold RFC
unspecified residential mortgage loans that allegedly violated unspecified
R&W’s in the Contract. (Am. Compl. at ¶¶ 68-69). RFC’s Amended Complaint
lists some of the R&W’s (Am. Compl. ¶ 24), and 5 of the purported 4,000 loans
(Am. Compl. ¶ 42), but RFC does not expressly allege which R&W’s each loan
RFC’s one count Amended Complaint for “indemnification” is premised
upon the indemnification provision in the Client Guide:
The Client shall indemnify GMAC-RFC from all losses, damages,
penalties, fines, forfeitures, court costs and reasonable attorneys’
fees, judgments, and any other costs, fees and expenses resulting
from any Event of Default. This includes, without limitation,
liabilities arising from (i) any act or failure to act, (ii) any breach
of warranty, obligation or representation contained in the Client
Contract, (iii) any claim, demand, defense or assertion against or
involving GMAC-RFC based on or resulting from such breach,
(iv) any breach of any representation, warranty or obligation
made by GMAC-RFC in reliance upon any warranty, obligation
or representation made by the Client contained in the Client
Contract and (v) any untrue statement of a material fact,
omission to state a material fact, or false or misleading
information provided by the Client in information required under
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Regulation AB or any successor regulation.
. . .
Client Guide at § A212 (emphasis added).
The Contract and Client Guide call for NBKC to indemnify RFC for
losses caused by NBKC committing an “Event of Default.” (Client Guide at
A208). Quoting from the Client Guide, an Event of Default is defined in part
A208 Events of Default
Any one or more of the following events constitute an Event of
(1) The Client has not complied with one or more of the
requirements (including any requirement outlined in Chapter 21
Client Eligibility) terms or conditions outlined in this Client
Guide or one of the disqualification, suspension or Inactivation
events set forth in the Disqualification Suspension or
Inactivation Section has occurred or occurs.
(2) The Client has breached any agreement outlined or
incorporated by reference in the Client Contract or any other
agreement between the Client and GMAC-RFC.
(3) The Client breaches any of the representations, warranties or
covenants set forth in this Client Guide, fails to perform its
obligations under this Client Guide or the Program Documents,
makes one or more misleading representations, warranties or
covenants to GMAC-RFC, or has failed to provide GMAC-RFC
with Information in a timely manner, including information
required under Regulation AB or any successor regulation, that is
true, complete and accurate.
. . .
Client Guide at § A208.
Section A200 of the Client Guide, titled “Client Representations
Warranties and Covenants,” provides that: “[t]he representations and
warranties contained herein are made as of each Funding Date.” (Client
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Guide at § A200) (emphasis in original).
Section A202 of the Client Guide, titled “Specific Representations,
Warranties and Covenants Concerning Individual Loans,” provides 39
paragraphs (numbered A-MM) of purported warranties NBKC made as to
each loan it sold RFC. The first specific warranty, for example, provides that:
(A) Loans Are Eligible; Accuracy of information
Each of the Loans delivered and sold to GMAC-RFC meets the
applicable program terms and criteria set forth in this Client
Guide. All information relating to each Loan delivered and sold to
GMAC·RFC is true, complete and accurate and there are no
omissions or material facts. All data provided by the Client to
GMAC-RFC relating to any Loan, whether in electronic format,
or otherwise, is true and complete and accurately reflects the
information in the related loan file.
Client Guide at § A202(A).
The 37th warranty states:
(KK) No Fraud or Misrepresentation
No fraud or misrepresentation by the Borrower or by the
Client, broker, correspondent, appraiser or any independent
contractor retained by the Client, broker, correspondent,
appraiser or any employee of any of the foregoing occurred
with respect to or in connection with the origination or
underwriting of any Loan and all Information and
documents provided to GMAC-RFC in connection with the Loan
are complete and accurate.
Client Guide at § A202(KK).
RFC’s original complaint did not identify any specific loans that
allegedly breached any specific R&W. While RFC does purport to identify five
loans in its Amended Complaint, it only includes RFC’s loan number, and
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does not include the information needed for NBKC to identify whether it sold
these loans to RFC. For example, RFC does not include any identifying facts
concerning these loans, such as the borrower’s name, the location of the loans
and their collateral, the amounts of the loans, the amounts remaining on the
loans, or the current status of the loans.
RFC attaches to its Amended Complaint a “preliminary list of
purported loans NBKC sold to RFC, from February, 2003 to April, 2005. (Am.
Compl. at ¶ 19 and Ex. C to Am. Compl.). While this list of loans includes
columns for “date of acquisition” and “original balance,” there is still only
RFC’s loan number, and no borrower name. Notably, two of the five loan
numbers identified in the Amended Complaint are not included in the list of
loans attached as exhibit C. Moreover, RFC admits that NBKC has already
indemnified it on three of the five loans identified. (Am. Compl. ¶ 42).
In 2003, Horizon National Bank became the National Bank of Kansas
City. (Garretson Dec. at ¶ 11). NBKC primarily sold residential mortgage
loans to RFC pursuant to the Contract through NBKC’s eSmartLoan.com
division (Id. at ¶¶ 12-13). The eSmartLoan.com division primarily offered
residential mortgage loans to consumers through the internet. (Id. at ¶ 13).
NBKC did not service the loans it sold to RFC (Id. at ¶ 14), or have any
involvement with a loan after selling it to RFC. (Id. at ¶ 15).
To track its loan sales and other financial matters prior to 2006, NBKC
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used the “Jack Henry Core Director” financial accounting software system for
banks. (Garretson Dec. at ¶ 20). In July, 2007, NBKC transitioned from the
Jack Henry Core Director to the “Harland PhoenixEFE Core” financial
accounting system for banks. (Id. at 21). NBKC has maintained all of its
general ledgers; it merely transitioned from one accounting system to another
in 2007. (Id. at ¶ 22). During the conversion, entries in the old general ledger
through July, 2007 were converted to the new general ledger. (Id. at ¶ 23).
Entries in the old general ledger from 2006 were also converted to the new
general ledger. (Id. at ¶ 24). NBKC’s general ledgers from before 2006,
however, were not converted to the new system. (Id. at ¶ 25).
NBKC maintains text file downloads of NBKC’s general ledger from the
old Jack Henry system, for dates prior to 2007 (“Text File”). (Id. at ¶ 26). Text
Files from NBKC’s old general ledger system contain records of loans sold to
RFC prior to 2007. (Id. at ¶¶ 26, 29; Ex.1 to this Dec. is an example of a Text
File). NBKC maintains a Microsoft Excel electronic spreadsheet document
that logs NBKC’s daily wire transfers (“Wire Log”) by year. (Id. at ¶¶ 32, 40;
Exs. 2 and 3 to the Dec. are examples of Wire Logs). NBKC’s Wire Log
consists of a workbook for each year from 2001 to the present. (Id. at ¶ 34). If
any wires in 2006 were not entered into the new accounting system, they
would still have been entered into the 2006 Wire Log. (Id. at ¶ 35).
In NBKC’s Wire Log, a wire transfer of funds from RFC to NBKC
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evidences money RFC paid to NBKC to purchase a residential mortgage loan.
(Garretson Dec. at ¶ 37). Entries relating to NBKC’s eSmartLoan.com
division were coded in the Wire Log as “Division 9.” (Id. at ¶ 28). NBKC used
the acronym “RFC” or “GMAC-RFC” for wire transfers with Plaintiff RFC.
(Id. at ¶ 38).
Eric Garretson, NBKC’s CFO, reviewed NBKC’s Text Files, Wire Log
and general ledger for evidence of payments from RFC to NBKC. (Id. at ¶¶ 9,
27, 31, 36). By reviewing the Text Files, Garretson determined that the last
loan NBKC sold to RFC – that was recorded in the old general ledger system
– was April 27, 2005. (Id. at ¶¶ 27, 30; Ex. 1 to Dec.). Garretson reviewed
NBKC’s Wire Log and confirmed the last RFC payment to NBKC for the
purchase of a residential mortgage loan was April 27, 2005. (Id. at ¶¶ 41-43).
The Wire Log corroborates the Text Log because NBKC’s Wire Log contains
an entry on April 27, 2005 identified as “Code 9, wire in RFC” in the amount
of $33,278.24. (Id. at ¶¶ 41-42; Ex. 2 to Dec.). Neither the Wire Log nor the
general ledger evidences any wire transfers from RFC to NBKC after April
27, 2005 for sales of residential mortgage loans. (Id. at ¶ 43).
I. RFC Lacks Standing to Bring This Claim.
RFC admits it securitized many of the loans NBKC sold it by pooling
them into trusts; RRC identified a number of such trusts, including “2004-
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HS1” (Am. Compl. Ex. C). RFC filed public documents with the SEC,
including a Pooling and Servicing Agreement (“PSA”), admitting that it has
assigned its rights in these loans to the upstream trusts to which it sold the
Section 2.01. Conveyance of Mortgage Loans.
(a) The Company, concurrently with the execution and delivery
hereof, does hereby assign to the Trustee for the benefit of the
Certificateholders without recourse all the right, title and
interest of the Company in and to the Mortgage Loans, including
all interest and principal received on or with respect to the
Mortgage Loans after the Cut-off Date (other than payments of
principal and interest due on the Mortgage Loans in the month of
the Cut-off Date).
Series Supplement, Dated as of June 1, 2005, to Standard Terms of Pooling
and Servicing Agreement, Dated as of August 1, 2004, Mortgage Asset-
Backed Pass-Through Certificates SERIES 2005-QS8 at § 2.01(a), at p. 259,
attached as Ex. B, available at:
RFC lacks standing to maintain its contractual indemnification claim
because it assigned to the various trusts its rights to the loans it sold. See
Dunn v. Nat’l Beverage Corp., 729 N.W.2d 637, 648 (Minn. Ct. App. 2007)
aff'd, 745 N.W.2d 549 (Minn. 2008) (“[a] breach-of-contract claim cannot be
maintained when the rights vested in the contract have been assigned to
another party”); see also Pine Valley Meats, Inc. v. Canal Capital Corp., 566
N.W.2d 357, 365 (Minn. Ct. App. 1997) (stating that trial court determined
that party had no standing to assert claim when it had assigned its rights
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under contract to another), abrogated on other grounds by Myers v. Hearth
Tech., Inc., 621 N.W.2d 787 (Minn. Ct. App. 2001), review denied (Minn. Mar.
This Court may take judicial notice of publicly available information
when considering a Rule 12 motion to dismiss. See Alexander v. Hedback,
718 F.3d 762, 764, fn 2 (8th Cir. 2013) (explaining that district court may
properly consider “items subject to judicial notice, matters of public record”).
The PSA establishes RFC assigned away the rights it seeks to assert here.
II. RFC’s Indemnification Claim is Time-Barred.
The undisputed facts establish that RFC’s claim is untimely as a
matter of law.
Summary judgment should be granted if “the pleadings . . .
together with the affidavits . . . show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56; Torgerson v. City of Rochester, 643 F.3d 1031, 1042
(8th Cir. 2011). Applicable substantive law determines which facts are
material, and which are irrelevant. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986). Once the moving party has met its initial burden of
informing the court of the basis for its motion, the non-movant must set forth
specific facts demonstrating that there is a dispute as to a genuine issue of
RFC’s Bankruptcy Petition did not toll or revive untimely claims. (NBKC’s
Memo. Opposing RFC’s Mot. to Transfer at 10-11, Dkt. No. 30).
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material fact, as opposed to mere allegations or denials. Anderson, 477 U.S.
at 248, 258.
NBKC submits a Declaration in support of its summary judgment
motion (Fed. R. Civ. P. 56(c)); NBKC does not rely upon the Declaration for
its Rule 12(b)(6) motion to dismiss. (Fed. R. Civ. P. 12(d)). RFC’s authority for
its assertion summary judgment now is improper does not involve the statute
of limitations question presented here. See Northland Ins. Co. v. Blavlock,
115 F. Supp. 2d 1108, 1115 at n. 2 (D. Minn. 2000) (declining to convert a
Rule 12(b)(6) motion that included an affidavit into a Rule 56 motion in a
trademark infringement suit); Whitfield v. Public Housing Agency Of The
City Of St. Paul, 2004 WL 1212082, at *2 (D. Minn. May 19, 2004) (declining
to rule on a Rule 56 motion and finding two claims survived a Rule 12(b)(6)
motion to dismiss a Fair Housing Act suit). NBKC’s motion is not premature
because the material facts are undisputed and the legal question of whether
the limitations period has expired is properly before this Court.
A. RFC Chose Minnesota Law.
Minnesota state law applies to this diversity action because federal
courts apply the forum state’s law in diversity actions (Hallstrom By and
Through Hallstrom v. Ammerman, 113 F.3d 872, 874 (8th Cir. 1997)), and
because the Contract between the parties contains a Minnesota choice of law
provision. (Contract at ¶ 13); see Union Elec. Co. v. Energy Ins. Mut. Ltd.,
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689 F.3d 968, 973-74 (8th Cir. 2012) (forum selection clauses resulting from
arm’s-length negotiations are prima facie valid and enforced unless unjust or
In Minnesota, a party has six years to bring a breach of contract claim.
Minn. Stat. § 541.05; Jacobson v. Bd. Of Trustees of the Teachers Ret. Ass’n.,
627 N.W.2d 106, 110 (Minn. Ct. App. 2001). As the Minnesota Supreme Court
stated, statutes of limitations are:
[B]ased to a great extent on the proposition that if one person has
a claim against another . . . it would be inequitable for him to
assert such claim after an unreasonable lapse of time, during
which such other has been permitted to rest in the belief that no
such claim existed.
Park Nicollet Clinic v. Hamann, 808 N.W.2d 828, 832 (Minn. 2011).
This time period begins to run “after the cause of action accrues.” Minn.
Stat. § 541.05. “A cause of action for breach of contract generally accrues at
the time of the alleged breach.” Jacobson, 627 N.W.2d at 110. “This is true
even when actual damages resulting from the breach do not occur until some
time [sic] afterwards or when the aggrieved party was ignorant of the facts
constituting the breach.” Id.; see also Enervations, Inc. v. Minnesota Mining
and Mfg. Co., 380 F.3d 1066, 1069 at fn. 2 (8th Cir. 2004) (applying the well-
settled Minnesota rule “that a cause of action for breach of contract accrues
immediately on a breach, though actual damages resulting therefrom do not
occur until afterwards”). Minnesota courts hold that a statute of limitations
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begins to run when “the plaintiff can allege sufficient facts to survive a
motion to dismiss for failure to state a claim upon which relief can be
granted.” Antone v. Mirviss, 720 N.W.2d 331, 335 (Minn. 2006).
Moreover, RFC drafted the Contract and chose the Minnesota choice of
law provision, so it cannot be heard to complain about the operation of
Minnesota law in this instance. See Turner v. Alpha Phi Sorority House, 276
N.W.2d 63, 66 (Minn. 1979) (noting that “[w]here there are ambiguous terms
or the intent is doubtful, it is axiomatic that the contract will be construed
against the drafter”); and Stark v. Sandberg, Phoenix & von Gontard, P.C.,
381 F.3d 793, 802 (8th Cir. 2004) (explaining the purpose of the common-law
rule of contract interpretation that a court should construe ambiguous
language against the drafter is to “protect the party who did not choose the
language from an unintended or unfair result”).
B. Minnesota Claims for Contractual Indemnification Accrue When
the Parties Intend them to Accrue as Reflected in their Contract.
RFC’s claim for “indemnification” arises out of provisions in its Client
Guide. (Am. Compl. at ¶ 32). NBKC’s purported duty to indemnify RFC is
therefore contractual. Northwestern Nat. Ins. Co. ex rel. Swanberg v.
Carlson, 711 N.W.2d 821, 824 (Minn. Ct. App. 2006); E.S.P. Inc. v. Midway
Nat Bank of St Paul, 447 N.W.2d 882, 885 (Minn. 1989). It is important to
distinguish contractual indemnity from other forms, such as a Minnesota
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common law cause of action for indemnity.
An independent cause of action for indemnity is an equitable remedy
based on restitution, and is commonly seen in joint tortfeasor cases.
Blomgren v Marshall Management Services Inc., 483 N.W.2d 504, 506-07
(Minn. Ct. App. 1992). A defining feature of joint tortfeasor indemnity is the
underlying policy that one joint tortfeasor should not be forced to bear more
than their fair share of the shared liability. Id. In that context, it makes
sense to mark the accrual of an indemnity claim as the time when one joint
tortfeasor has been made to pay more than their fair share, such as when a
judgment has been entered. Id. In fact, if a claim could accrue and expire
before a judgment occurred, the public policy of fairly allocating liability
could be undermined.
Contractual indemnification, on the other hand, is a creature of
contract, and ordinary contract principles apply. While the general rule for
the accrual of contractual indemnification claims is derived from the common
law – claims accrue when damages or liability has been established – courts
are to interpret contracts according to the plain meaning of the terms used,
and with the goal of ascertaining and respecting the intent of the parties. See
Harleysville Ins. Co. v. Physical Distribution Services Inc., 716 F.3d 451, 457-
58 (8th Cir. 2013) (applying Minnesota law and discerning the plain meaning
of the contractual indemnity provision).
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To that affect, this Court should not apply joint tortfeasor indemnity
principles as RFC advocates. Rather, this Court should examine the Contract
and all of the surrounding circumstances to determine the proper accrual
date for RFC’s indemnification claim. See E.S.P. Inc., 447 N.W.2d at 885
(although the duty to indemnify may arise out of a contract, “[b]ecause
indemnity is equitable in nature, its application hinges upon particular facts
of the controversy”).
RFC responded to NBKC’s first motion for summary judgment, and
apart from arguing its amended complaint mooted that motion, went on to
argue its claim for indemnification does not accrue under Minnesota law until
its liability has been fixed or ascertained through a settlement or judgment.
(RFC’s Memo. Opposing NBKC’s Mot. for Summary Judgment at 8, Dkt. No.
29). RFC cites three cases as authority for its assertion regarding the accrual
of indemnity claims, but none of the cases concern contractual indemnity. See
Hernick v. Verhasselt Construction, Inc., No. CX-02-1424, 2003 WL 1814876,
at *5 (Minn. Ct. App. April 8, 2003)
(third-party common law claim for
indemnity between contractors); Mason v. Spiegel, Inc., 610 F. Supp. 401, 404
n.3 (D. Minn. 1985) (third-party common law claim for indemnity between
seller and manufacturer in products liability dispute); Metropolitan Property
Hernick is an unpublished opinion of the Minnesota Appellate Court and
cannot be cited as precedential. MINN. ST. § 480A.08(3)(c).
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& Casualty Ins. Co. v. Metropolitan Transit Comm’n, 538 N.W.2d 692, 695
(Minn. 1995) (statutory claim for indemnity in insurance dispute). The
foregoing cases do not involve contractual indemnity or the sale of mortgage
loans, and are inapplicable to RFC’s indemnification claim at issue.
Mason also shows that courts are not always precise when examining
Minnesota indemnification law. Mason involves a claim for common law
indemnity, but the court cites a case involving common law contribution for
the accrual rule. See Mason, 610 F. Supp. at 404 n.3 (citing Grothe v.
Shaffer, 232 N.W.2d 227, 232 (Minn. 1975)) (stating that “under Minnesota
law, the statute of limitations does not begin to run on a right to claim
contribution or indemnity until liability by the party claiming such right
actually occurs,” but the cited authority is only about contribution).
Other Circuits and State courts look to the parties’ intent as expressed
in their contract, rather than common law rules, when interpreting
contractual indemnification claims. See Bainville v. Hess Oil V.I. Corp., 837
F.2d 128, 130 (3d Cir. 1988) (determining scope of duty to indemnify by “the
parties’ mutual intent, expressed in the contract, rather than by general
principles of equity”); Huffy Corp. v. Arai Indus. Co., Ltd., 187 F.3d 635 (6th
Cir. 1999) (explaining that “in contract indemnity cases, as distinguished
from cases where liability arises as a matter of law, the question of whether
actual liability is a prerequisite to the duty to indemnify is answered by
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reference to what the parties, by virtue of their contractual capacity, intended
as reflected in the language of the indemnity clause”);Winnemucca Farms,
Inc. v. Eckersell, 3:05-CV-0385-RAM, 2008 WL 8943375, at * (D. Nev. May
14, 2008) (“When parties expressly deal with the question of indemnity in a
written contract, the Ninth Circuit concludes that they intended what was
expressed in their agreement, not that some common law rule should govern
their rights and liabilities.”).
C. RFC’s Indemnification Claim Accrued on the Loan Sale Date.
The Contract and attendant circumstances evidence the parties’ intent
to establish the loan sale date as the claim accrual date. In fact, the loan sale
date is the critical date to RFC because the extensive list of R&W’s in the
Client Guide are imposed on NBKC as of the sale date of each loan. The
indemnification provision in the Client Guide calls for NBKC to indemnify
RFC for losses caused by NBKC committing an “Event of Default.” (§ A212).
But the “Event of Default” provision defines default, in pertinent part, as
NBKC breaching the R&W’s section of the Client Guide. (§ A208).
The R&W’s in the Client Guide RFC generally fall into 2 categories.
First, RFC seeks warranties regarding the condition of its client (NBKC),
including inter alia its corporate status, authority to act, and lack of conflicts.
(Client Guide at § A200). Second, RFC seeks warranties regarding the
condition of each residential mortgage loan NBKC is offering to sell to RFC,
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including inter alia that the loan meets RFC’s terms and is eligible for sale,
that there is no fraud, and that the information in the loan documents is
accurate. (Client Guide at §§ A202(A-MM). The Client Guide announces that
the foregoing warranties imposed on NBKC are effective each time NBKC
sells a loan to RFC. (Client Guide at § A200).
NBKC last sold loans to RFC in 2005. Any NBKC act or omission that
RFC alleges to have breached the Contract occurred on or before the last loan
was sold to RFC in 2005. RFC does not allege, nor can it, that NBKC
breached any provisions of the Contract after RFC purchased a loan from
NBKC, because NBKC did not service these loans for RFC and NBKC had no
involvement with a particular loan after RFC purchased it. (Dec. at ¶¶ 14-
15). Any alleged breach of the Contract, including the R&W’s in the Client
Guide that are purportedly incorporated into the Contract, occurred at or
before the time RFC purchased the loan from NBKC. In other words, if a
particular loan breached the Contract, the breach was complete at the time
NBKC sold a loan that allegedly did not meet the requirements of the
Contract or Client Guide.
RFC was vested with a cause of action for contractual indemnification
it could proceed on in court the moment it purchased a loan that did not meet
the requirements of the Contract or Client Guide. Minnesota law is clear that
any breach occurred when NBKC sold the loan to RFC, not when RFC
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realized any alleged damages from loans it purchased from NBKC. See
Jacobson, 627 N.W.2d at 110 (explaining that cause of action accrues when
the breach occurred, even where the resulting damages do not occur until
A recent case applying New York law to a similar dispute held that
claims for breach of contract, including failure to indemnify for breaching
R&W’s, accrued when a loan was sold. See Lehman Bros. Holdings, Inc. v.
Evergreen Moneysource Mortg. Co., 793 F. Supp. 2d 1189, 1193-94 (W.D.
Wash. 2011) (the loan sale date is when breaches of R&W’s occurred and
when a buyer could demand payment for such a breach).
Mortgage loan litigation applying New York law should be persuasive
because Minnesota and New York law regarding contracts and accrual of
claims are substantially identical. Compare Jacobson, 627 N.W.2d at 110
with Lehman XS Trust Series 2006-4N ex rel. US Bank Nat Ass’n. v.
Greenpoint Mortg. Funding, Inc., No. 13 Civ. 4707, 2104 WL 108523, ay *3-4
(S.D.N.Y. Jan. 10, 2014) (explaining that contract claims accrue at the time of
the breach, starting the six year limitations period even where damages do
not occur until later).
Although RFC did not cite the specific R&W’s it alleges NBKC
breached in its Complaint or attach the complete Client Guide as an exhibit
to the Complaint, it did include the purported warranties NBKC made as to
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each loan. (Client Guide at A202). The Client Guide contains provisions
purportedly calling on NBKC to warrant that the loans it sold to RFC were
eligible for sale because they met all of the terms in the Client Guide
(A202(A)), and that all of the information related to each loan was accurate.
(Id. at A202(KK)). As the Client Guide further explained, any warranty made
by NBKC was made as of the “Funding Date” of a loan. (A200).
RFC’s own documents evidences its intent to define a breach of a
warranty by NBKC as occurring when NBKC sold RFC a loan that did not
meet the terms in the Client Guide. If a particular loan did not meet all of the
terms in Section A202, and was ineligible for sale to RFC, any breach of the
pertinent warranties occurred when NBKC sold the loan to RFC. If there
were inaccuracies in the information supporting a particular loan, those
inaccuracies constituted a breach of the warranties in §§ A202(A) and (KK) at
the time NBKC sold the loan to RFC. There was no subsequent conduct by
NBKC, nor was there any change in the features of the residential mortgage
loans, that created a cause of action for RFC after the date the loan was sold.
Put another way, the Contract and incorporated Client Guide express
the parties’ intent to impose these material warranties on NBKC at the time
of sale of each loan. By analogy, claims for breach of warranty accrue when
the product is tendered. See ACE Securities Corp. Home Equity Loan Trust,
Series 2007-HE3 v. DB Structured Products, Inc., Nos. 13 Civ. 1869, 2014 WL
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1116758, at * (S.D.N.Y Mar. 20, 2014) (breach of contract claim accrued
under New York law when the loans were sold in breach of R&W’s in the
parties’ agreement); see also Appletree Square 1 Ltd. P'ship v. W.R. Grace &
Co., 815 F. Supp. 1266, 1280-81 (D. Minn. 1993) aff’d sub nom. Appletree
Square I, Ltd. P’ship v. W.R. Grace & Co., 29 F.3d 1283 (8th Cir. 1994); City
of Willmar v. Short-Elliott-Hendrickson, Inc., 475 N.W.2d 73, 80 (Minn. 1991)
(both UCC cases). Because RFC imposed an extensive list of warranties upon
NBKC, effective on the loan sale date, it is appropriate to analogize its
“indemnification” claim to a breach of warranty claim and define the accrual
date to be the sale/tender date.
Determining as a matter of Minnesota law that claims for contractual
indemnity over the sale of residential mortgage loans accrue when the loans
are sold is fair to both parties and respects their intentions as expressed in
the Contract. Accrual of claims on the loan sale date affords RFC six years to
determine if a loan breached any of its R&W’s and pursue a remedy from
NBKC, while also providing NBKC the peace of mind of knowing that stale
claims won’t arise many years later.
D. Alternatively, RFC’s Indemnification Claim Accrued on the Loan
Alternatively, this Court should determine as a matter of law that
RFC’s contractual indemnity claims accrued when RFC securitized the loans,
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publicly exposing itself to liability. RFC admits it pooled the residential
mortgage loans purchased from NBKC into trusts, securitizing them in order
to sell interests in the trusts as investment securities.
(Am. Compl. at ¶¶ 2-
3, 21, 23, 25, 35-36). RFC admits it provided its own R&W’s to investors,
covering the loans it sold. (Am. Compl. at ¶¶ 25, 36). By inference, every loan
NBKC sold RFC, allegedly in violation of NBKC’s R&W’s to RFC, constitutes
a loan RFC sold in violation of RFC’s R&W’s to the upstream investor.
RFC’s pleading and publicly available information establish that RFC
securitized or otherwise sold all of the loans NBKC sold to it before the end of
2005. The last loan NBKC sold RFC was securitized into trust 2005-QS8. See
(Ex. C to Am. Compl. at p. 89, RFC loan no. 9869005) (RFC list of securitized
loans identify the trusts loans were sold to by year and establish 2005 trusts
were the last). Public records establish the last loan NBKC sold RFC was
securitized into trust 2005-QS8 by June 1, 2005. See Ex. B, PSA at p. 86
(RFC loan no. 9869005 listed on loan schedule), available at:
Upon securitizing these loans, RFC made its own R&W’s to potential
The court in Ace Securities concisely explains how loans are securitized.
ACE Securities Corp. Home Equity Loan Trust, Series 2007-HE3 v. DB
Structured Products, Inc., Nos. 13 Civ. 1869, 2014 WL 1116758, at *2
(S.D.N.Y Mar. 20, 2014).
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investors, and exposed itself to liability for breaching them. As RFC
admitted, the R&W’s it required from NBKC as to each loan were in turn
R&W’s RFC made to its investors as to those same loans. Once RFC has
exposed itself to liability by re-selling a loan, it is proper to deem that its
cause of action for contractual indemnification has accrued.
This scenario highlights the danger of relying on joint tortfeasor
indemnification case law to interpret the parties’ contractual indemnity
agreement. The cases interpreting common law joint tortfeasor
contribution/indemnity claims explain the policy goal behind the common law
rule is to prevent an unfair allocation of shared liability. Blomgren, 483
N.W.2d at 506-07. With that public policy goal in mind, it would be illogical to
allow this type of indemnity to accrue before judgment, say the date of the
accident for example, because there is as of yet no unfair allocation of shared
In contrast, RFC and NBKC are not tortfeasors, joint or otherwise. The
parties are litigating RFC’s claim that NBKC breached the indemnification
provision in the parties’ Contract. RFC does not want to share liability, and it
is not alleging that it has paid an unfair share of some joint liability. In fact,
RFC treats the indemnification clause in the Contract as if it afforded RFC
the right to impose strict liability on NBKC, in order to transfer all liability
on these loans to NBKC.
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Where the party benefiting from a contractual indemnification
provision is permitted to shift all liability, and accrual of its claims are tolled
until some later judgment is imposed, it encourages the beneficiary of the
blanket protection to neglect the servicing of the loan, and otherwise
disregard its duties, knowing that it can push any later damages
downstream. Conversely, establishing that claims accrue when the last loan
is sold and a trust is closed encourages diligence, but still affords RFC six
years after a trust closes to bring a claim. See Lehman XS Trust, Series 2006-
GP2 v. GreenPoint Mortg. Funding, Inc., No. 12 Civ. 7935, 2014 WL 1301944,
at * (S.D.N.Y Mar. 31, 2014) (claims that loans sold to trust breached R&W’s
of pooling agreement accrued when the last loan was sold and the trust
closed); ACE Securities Corp. v. DB Structured Products, Inc., 977 N.Y.S.2d
229, 230-31 (NY Sup. Ct. App. Div. 2013) (trustee’s claim that sponsor
breached R&W’s in agreement to securitize loans accrued on the closing date
of the trust, when any breach occurred).
III. RFC’s Unreasonable Attempt to Toll the Statute of Limitations
Before Claims Accrue is Unenforceable.
Not only will RFC argue that its claims don’t accrue until it decides, at
its discretion, to pay back its investors on their claims, but it also will assert
that its claims survive for the life of the loans. In the event the Court
determines that RFC’s claims do not accrue until it actually has judgments
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entered against it, this Court should find the Contract contains an
unreasonable and therefore unenforceable tolling of the statute of limitations.
RFC’s Contract should be deemed unenforceable to the extent it
purports to toll the statute of limitations on claims for breach of contractual
indemnification, before such claims have accrued. See, e.g., Lehman XS
Trust, Series 2006-GP2 v. GreenPoint Mortg. Funding, Inc., No. 12 Civ. 7935,
2014 WL 1301944, at * (S.D.N.Y Mar. 31, 2014) (New York law does not
permit tolling the limitations period before a claim has accrued).
In any event, to be enforceable under Minnesota law, a contractual
indemnity provisions must clearly and unequivocally apprise the indemnitee
of the scope of its duty to indemnify. See Harleysville Ins Co v Physical
Distribution Services Inc., 716 F.3d 451, 457-58 (8th Cir. 2013); Yang v
Voyagaire Houseboats Inc., 701 N.W.2d 783, 791 at fn 5 (Minn. 2005)
(requirement that indemnity provision be clear and unequivocal applies to all
contractual indemnity claims, not just construction cases). RFC’s indemnity
provision does not clearly and unequivocally give NBKC notice of RFC’s
assertion that the indemnity clause acts to toll the statute of limitations.
RFC’s Client Guide purports to force the R&W’s imposed on NBKC to
survive and remain in effect for the life of the loans. (Client Guide at §
A209(c)). Because many of the loans NBKC sold RFC were 30-year
residential mortgage loans, RFC’s Contract impermissibly seeks to toll the
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Minnesota statute of limitations for breach of contractual indemnity
provisions by up to thirty years. If so permitted, RFC could wait 36 years
after NBKC sold it a loan to bring suit for indemnification. This is not what
the parties bargained for in the Contract, and in any event, this tolling
provision is unreasonable under Minnesota law.
Contracting parties may alter the statutory limitations period so long
as the new period is reasonable. Peggy Rose Revocable Trust v. Eppich, 640
N.W.2d 601, 606 (Minn. 2002). While Minnesota law allows contracting
parties to limit the time in which a cause of action may be brought, such
provisions are disfavored and are construed strictly against the party
invoking them. Hartford Fire Ins. Co. v. Clark, 562 F.3d 943, 946 (8th Cir.
2009). Although most Minnesota cases deal with shortened limitation
periods, the logic applies equally to RFC’s effort to substantially extend the
limitations period for its benefit, because whether a “contractual limitations
period is reasonable depends upon the particular facts presented; what is
acceptable in one case may be objectionable in another.” Id.
Here, the parties expressly agreed that NBKC would sell loans to RFC,
and in the event those loans violated any of the R&W’s NBKC made, the
Contract provided a variety of remedies to RFC, including repurchase or
indemnification. (Client Guide at §§ A208, A209, and A212). RFC chose
Minnesota law and its six year statute of limitation for contract actions,
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meaning the parties agreed that RFC would have six years from the time
NBKC sold it a loan to seek a remedy from NBKC on that loan. To determine
otherwise would permit RFC to unreasonably extend the limitation period by
up to thirty years without expressly and conspicuously announcing its intent
to do so in the Contract.
IV. RFC’S Amended Complaint Fails to State a Plausible Claim.
A. RFC Has Pled Itself Out of Court by Admitting NBKC Last Sold
RFC a Loan in April, 2005.
Alternatively, if the Court denies or declines to rule on NBKC’s motion
for summary judgment, NBKC moves for dismissal with prejudice pursuant
to Rule 12(b)(6) because RFC’s Amended Complaint admits that NBKC sold
the last loan to RFC in April, 2005, rendering RFC’s Amended Complaint
untimely on its face. (Am. Compl. Ex. C). This Court may grant a Rule 12
dismissal on limitations grounds if the plaintiff pleads itself out of court.
Varner v. Peterson Farms, 371 F.3d 1011, 1016 (8th Cir. 2004); Strandberg v.
Country Mut. Ins. Co., No. 11-cv-1545, 2011 WL 6382873, at *2 (D. Minn.
Dec. 20, 2011).
B. RFC’s Amended Complaint Fails to Give NBKC Proper Notice.
A Rule 12(b)(6) motion to dismiss should be granted when the
allegations in the complaint fail to state a claim for relief that rises above
mere speculation. Fed. R. Civ. P. 12(b)(6); Bell Atlantic Corp. v. Twombly, 550
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U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009). On a Rule 12(b)(6)
motion, the court construes the factual allegations in the complaint, and
reasonable inferences drawn from the facts, in favor of the non-movant, but
will grant the motion to dismiss if the complaint fails to include “enough facts
to state a claim for relief that is plausible on its face.” MASTR Asset Backed
Sec. Trust 2006-HE3 ex rel. U.S. Bank Nat. Ass’n v. WMC Mortgage Corp.,
843 F. Supp. 2d 996, 998 (D. Minn. 2012) (citing Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007)).
A claim for breach of contract must allege the following elements: (1)
formation of a contract; (2) performance by plaintiff of any conditions
precedent; (3) a material breach of the contract by defendant; and (4)
damages. General Mills Operations, LLC v. Five Star Custom Foods, Ltd.,
703 F.3d 1104, 1107 (8th Cir. 2013) (applying Minnesota law). The mere
assertion that a defendant breached a contractual obligation is not enough;
the complaint must contain specific factual allegations supporting the legal
conclusion that a breach has occurred. See Motley v. Homecomings Financial,
LLC, 557 F. Supp. 2d 1005, 1013 (D. Minn. 2008) (granting Rule 12(b)(6)
motion to dismiss breach of contract action).
In Motley, the plaintiffs failed to plead the factual detail required to
establish that the defendant’s actions constituted breaches, merely alleging
that mortgage fees were “unnecessary.” Id. The Motley plaintiffs did not cite
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to any specific contract terms that were allegedly breached. Id. Plaintiffs
must “plead sufficient facts to demonstrate why and how [the defendant]
allegedly breached its contracts with Plaintiffs.” Id. Facts supporting each
element of the claim are required, and granting dismissal is proper where the
plaintiff fails to comply. See also Johnson v. Evangelical Lutheran Church of
America, Civ. No. 11-23, 2012 WL 2370286 at *4 (D. Minn. Mar. 9, 2012) and
Johnson v. Homeownership Preservation Foundation, Civ. No. 09-600, 2009
WL 6067018 at *6 (D. Minn. Dec. 18, 2009) (granting Rule 12(b)(6) motions to
dismiss breach of contract claims for failure to allege adequate supporting
RFC’s Complaint fails to plead the most basic facts about NBKC’s
alleged contractual breaches, including the specific loans and the specific
representations and warranties that were breached. RFC’s failure to plead
adequate facts warrants dismissal on Twombly/Iqbal grounds. See T.B. Allen
and Associates, Inc. v. Euro-Pro Operating LLC, Civ. No. 11-34792012 WL
2508021, at *2 (Dist. Minn. June 28, 2012) (dismissing breach of contract
claim for failure to plead facts sufficient to state a plausible claim for relief).
While RFC will assert that it need not identify specific loans or
breaches, cases it may rely upon are distinguishable. See Bank Hapoalim
B.M. v. Bank of America Corp., Nos. 12–CV–4316–MRP (MANx), 2012 WL
6814194, at *7 (C.D. Cal., Dec. 21, 2012) (deciding plaintiff did not need to
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plead each loan where complaint alleged all of the loans deviated from
underwriting guidelines); Assured Guar. Mun. Corp. v. Flagstar Bank, FSB,
920 F. Supp. 2d 475, 512-13 (S.D.N.Y. 2013) (findings of fact after bench trial
concluded that the parties’ contract did not require notice as to each loan).
Here, RFC has pled less than the bare minimum, merely pleading the
existence of a contract and generic breaches that caused unspecified
damages. (Compl. ¶¶ 1-4, 63-65). Rule 8(a) requires that pleadings must
contain “a short and plain statement of the claim showing that the pleader is
entitled to relief. Fed. R. Civ. P. 8(a); ACIST Medical Systems, Inc. v.
OPSENS, Inc., No. 11-539, 2011 WL 4640884, at * (D. Minn. Oct. 4, 2011).
RFC has failed to adequately plead how NBKC breached the Contract, as
NBKC cannot determine from the Complaint which provisions of the
Contract it allegedly breached.
Nor can NBKC determine from the Complaint which loan or loans RFC
now claims breached the Contract and how any such loan breached the
Contract. RFC’s Complaint does not plead enough facts to state a plausible
claim for relief, where all of the information on each loan is in their
possession. If facts exist sufficient to state a plausible claim, RFC would have
In an analogous context, courts have held that a plaintiff does not
satisfy Rule 8 notice standards by alleging generally that even loans
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identified by name were “unsafe and unsound” transactions. In RTC v.
Blasdell, 154 F.R.D. 675, 690 (D. Ariz. 1993), the name of the transaction and
the alleged loss amount failed to provide fair notice of how any such loan
allegedly was “unsafe and unsound.” In Blasdell, the court ordered the
plaintiff to identify (1) the date or dates of each transaction, (2) the identity of
the person or entities involved in each transaction, (3) a brief statement
regarding the unsafe or unsound nature of the transaction, and (4) the
identity of the defendant alleged to be involved in each transaction. Id. Other
courts have directed plaintiffs to identify each loan that allegedly is at issue
in a complaint and have held that a plaintiff cannot allege generally that
other unidentified loans might be at issue. See FDIC v. Wise, 758 F. Supp.
1414, 1420-21 (D. Colo. 1991) (striking allegations purporting to reserve right
to prove additional unsound practices not in the complaint and allegations
that identified transactions were only examples of other unsound practices).
In contrast to RFC’s pleading that does not identify a single loan, other
recent mortgage repurchase suits have survived Rule 12(b)(6) motions
because the plaintiffs satisfied Rule 8 and stated plausible claims by
specifically identifying the loans and alleged breaches as issue. See Aurora
Commercial Corp. v. PMAC Lending Services, Inc., No. 13–cv–00497–LTB,
2014 WL 859253, at * 4 (D. Colo., Mar. 5, 2014) (surviving motion because
plaintiff identified specific loans and the alleged misrepresentations
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defendant made as to each loan sold); JPMorgan Chase Bank, N.A. v. Sierra
Pacific Mortg. Co., Inc., No. 2:13–cv–01397–JAM–KJM, 2013 WL 6491526, at
*3-4 (E.D. Cal. Dec. 10, 2013) (surviving motion because plaintiff specifically
identified the loans at issue, their alleged defects, breaches and/or ground for
repurchase or make whole demand, the date the plaintiff repurchased the
loans from investors, and the date the plaintiff made a final demand on the
Unlike the foregoing authority, RFC’s Complaint fails to provide
adequate notice to NBKC because RFC does not identify specific loans or
Contract provisions, preventing NBKC from investigating the allegations.
RFC attaches a list of purported loans to its Amended Compliant, but the list
does not provide enough information to identify the loans or alleged breaches.
NBKC is unable to identify the alleged loans without more information. As
the Motley court explained: “it is not enough for [plaintiff] to simply recite the
magic words ‘breach’ in order to avoid dismissal.” Motley, 557 F. Supp. 2d at
Defendant NBKC respectfully requests the Court grant its motion and
enter judgment against RFC because the material facts are undisputed and
NBKC is entitled to judgment as a matter of law that RFC’s claim is time-
barred under Minnesota law.
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Alternatively, NBKC respectfully requests the Court grant its motion
to dismiss because RFC fails to state a claim for relief where its own
pleadings establish that the claim is time-barred. Further, the Amended
Complaint fails to state a plausible claim for relief because RFC did not
provide enough information to determine whether NBKC sold the loans to
RFC, and is inadequate to give NBKC proper notice as to its alleged breaches
of the Contract and RFC’s alleged resulting damages.
Dated: April 16, 2014.
NATIONAL BANK OF KANSAS CITY
/s/ Scott N. Gilbert
One of its attorneys
Admitted Pro Hac Vice:
Nancy A. Temple
Scott N. Gilbert
KATTEN & TEMPLE LLP
542 South Dearborn Street, 14th FL
Chicago, Illinois 60605
P: (312) 663-0800
F: (312) 663-0900
2100 Rand Tower
527 Marquette Ave. South
Minneapolis, Minnesota 55402
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