Court Issues Summary Judgment Ruling in MBIA’s RMBS Action Against Countrywide

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On April 29, Justice Eileen Bransten of the New York State Supreme Court issued an opinion granting in part and denying in part competing motions for summary judgment filed by MBIA and Countrywide in connection with tort and contract claims MBIA asserted concerning its insurance policies wrapping certain Countrywide RMBS. With respect to Countrywide’s motion, the Court i) granted Countrywide’s motion to dismiss MBIA’s claim for indemnification because the contract did not unequivocally provide MBIA with a right to indemnification for claims between the parties; (ii) denied the motion as to MBIA’s fraudulent inducement claim because of  Countrywide’s failure to demonstrate that justifiable reliance is a required element of the claim under either statutory or common law; (iii) denied the motion as to claims for breach of the insurance agreements, holding that the language of the insurance agreement at issue did not limit MBIA to a “sole remedy” of repurchase and that MBIA had presented sufficient evidence to raise a triable issue that Countrywide was on notice of breaches throughout the collateral pools backing the RMBS at issue; (iv) ruled that MBIA had created issues of fact as to whether Countrywide committed servicing breaches with gross negligence; and (v) found triable issues of fact exist with respect to MBIA’s request for punitive damages in connection with its fraudulent inducement claim.

With respect to MBIA’s motion for summary judgment, the Court i) ruled that loans need not be in default in order to be eligible for repurchase; ii) found factual issues as to whether loans Countrywide classified as “severely unsatisfactory” breached Countrywide’s representations; iii) rejected MBIA’s argument that Countrywide’s refusal to repurchase loans constituted an anticipatory repudiation of its repurchase obligations; and iv) found that Countrywide had failed to raise triable fact issues on a loan-by-loan basis concerning  the falsity of representations including as to appraisals, defaults, the accuracy of the mortgage loan schedule, and the contents of mortgage loan files. The Court ruled that whether those breaches were sufficiently material and adverse to trigger Countrywide’s repurchase obligation was a question for trial. Because that issue remains for trial, the Court declined MBIA’s request to extrapolate breach findings within a loan sample to the entire pool of loans at issue. Order.