Opinion Granting Motions to Dismiss in BNP Paribas and Deutsche Bank Cases Against BofA

8/4/2019 Opinion Granting Motions to Dismiss in BNP Paribas and Deutsche Bank Cases Against BofA

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

-------------------- ------X

BNP PARIBAS MORTGAGECORPORATION and BNP PARIBAS,

a i n t i f f s ,

10 Civ. 8630 (RWS)

- aga ins t -

OPINION

BANK OF AMERICA, N.A.,

Defendant .

- - - - - - - - -X

DEUTSCHE BANK AG,

Pla in t i f f ,

10 Civ. 8299 (RWS)

- aga ins t

OPINION

BANK OF AMERICA, N.A.,

Defendant .

- - - - - - - - - - - - - - -X

A P P EA RAN C E S:

Attorneys fo r Pla in t i f f s BNP Paribas

BOIES SCHILLER & FLEXNER LLP

333 Main S t ree t

Armonk, NY 10504

By: Robin A. Henry,

Motty Shulman, Esq.Jack Wilson, Esq.

Case 1:10-cv-08299-RWS Document 63 Filed 08/30/11 Page 1 of 29



At

fo r Pla in t i f f Deutsche Bank AG

WILLIAMS & CONNOLLY LLP

725 Twelf th St ree t , N.W.

Washington,DC

20005By: William E. McDaniels, Esq.

Thomas G. Ward, Esq.

Stephen P. Sorensen, Esq.

fo r Defendant Bank of America N.A.

MUNGER, TOLLES & OLSON LLP

355 South Grand Avenue, 35th Floor

Los Angeles, CA 90071-1560

By: Marc T.G. Dworsky, Esq.

Kris t in Lins ley Myles, Esq.

Richard S t. John, Esq.

Sarala V. Nagala, Esq.

KING & SPALDING LLP

1185 Avenue of the Americas

New York, NY 10036

By: Richard T. Marooney, Esq.




Sweet, D.J.

In the se re l a t ed ac t ions , Defendant Bank of America,

N.A. ("BoA" or "Defendant") has moved, pursuant to Rule 12(b) (6)

of the Federal Rules of Civi l Procedure, to dismiss complaints

f i l ed by P l a i n t i f f s BNP Paribas Mortgage Corpora t ion ("BNP") and

Deutsche Bank AG ("DB" ) ( co l lec t ive ly , " P l a i n t i f f s " ) . Both

ac t ions cons i s t of claims fo r convers ion of mortgage loans and

t h e i r proceeds t h a t Pla in t i f f s a l lege BoA conver ted while

serving as , among o t he r ro les , Col la te ra l Agent fo r the loans ,

which P l a i n t i f f s were noteholders .

Both cases were i n i t i a l l y f i l ed in Fl o r i da and l a t e r

t rans fe r red to the Southern D i s t r i c t of New York, where they

were re l a t ed to tw o pending breach of c on t r a c t cases , Deutsche

Bank AG v. Bank of America, N.A., No. 09 Civ. 9784 (RSW) ("DB

I" ) and BNP Paribas Mortgage Corp. e t a l . v . Bank of America,

N.A., No. 09 Civ. 9783 (RSW) ("BNP I" ) ( co l lec t ive ly , the

"con t rac t cases") I which arose out of the co l l apse of the

Taylor , Bean & Whitaker Mortgage Corpora t ion ("TBW").

For the reasons se t fo r th below, BoA's motion to

dismiss i s gran ted with leave to rep lead wi th in 30 days .

1




I . PRIOR PROCEEDINGS

In the cont rac t ac t ions , BNP and DB each f i l ed i n i t i

Complaints aga ins t BoA on November 25, 2009. Both f i l ed Amended

Complaints on March 17, 2010. 1

In its Amended Complaint, DB asse r ted e i gh t causes of

ac t ion fo r breach of c on t r a c t , a l leg ing t ha t BoA breached the

cur ren t and p r i o r vers ions of four c on t r a c t s t h a t crea t ed and

governed a f a c i l i t y fo r th e o r ig in a t i o n , s a l e , and purchase of

home mortgages through TBW and its wholly-owned subs id ia ry ,

Ocala Funding, LLC ("Ocala tt ) ( the f ac i l i t y herea f t e r re fe r red to

as the "Ocala Faci l i ty t t ) . These cont rac t s inc lude the Secur i ty

Agreement, the Depos i ta ry Agreement, th e Cus tod ia l Agreement,

and the Base Indenture ( c o l l e c t i v e ly th e "Fac i l i ty Documents tt )

In addi t ion to its breach cont rac t c la ims , DB asse r ted a

cla im fo r breach of f iduc ia ry duty and seeks indemni f ica t ion

under the cur ren t and p r i o r ve rs i ons of th e Depos i ta ry ,

Secur i ty , and Custodi Agreements. BNP d id not br ing any

claims under the p r i o r ve rs i ons of the Fac i l i t y Documents, but

o therwise echoed DB's claims, with the addi t ion of a claim fo r

Hereaf ter , the Amended Complaint f i l ed by DB in i t s cont rac t s case w i l l

be re fe r red to as th e "DB-.!. AC II and th e Amended Complaint f i l ed by BNP in its

c o n t r a c t s case w i l l be re fe r red to as th e "BNP I AC."

2

1




"Breach of Contrac t / lndemni f ica t ion H under a March 27, 2009 s ide

l e t t e r .

On Apr i l 30, 2010/ BoA moved to dismiss the Amended

Complaints and o ra l argument was heard on t h a t motion on

September 15, 2010. On March 23, 2011/ the Court gran ted th e

motions as to the cla ims fo r breach of the Depos i to ry Agreement,

Custodia l Agreement, and March 2009 Let te r / as to the c la ims fo r

indemni f ica t ion , and as to the cla ims r e l a t i n g to Ocala Notes

i s sued p r i o r t o Ju ly 20, 2009. Th e Court denied BoA's motions

to dismiss as to a l l remaining c la ims .

On August 30, 2010, BNP and DB f i l ed new ac t ions

aga ins t BoA in the Southern D i s t r i c t of Flor ida .2

On November

17, 2010/ the ac t ions were t r a n s f e r r e d to the Southern s t r i c t

of New York and re fe r red to t h i s Court . In t hese , the i n s t a n t

act ions / en t i t l ed BNP Paribas Mortgage Corp. v . Bank of America

N.A., No. 10 Civ. 8630 (RSW) ("BNP I I" ) and Deutsche Bank AG v.

Bank of America N.A., No. 10 Civ. 8299 (RSW) ("DB I I"

( co l lec t ive ly , the "convers ion cases ll), BNP and DB a l lege two

causes of a c t i on f o r convers ion: the f i r s t fo r convers ion of

Hereaf ter , the Complaint f i l ed by DB in its convers ion ac t ion wil l be

re fe r red to as the "DB I I Compl." and the Complaint f i l ed by BNP in i t s

convers ion case wil l be re fe r red to as the "BNP I I Compl."

3

2




ce r t a in mortgage loans ( co l lec t ive ly , the "Loans") and second

fo r convers ion of the sa le proceeds of those loans .

On November 23, 2010, BoA f i l ed motions to dismiss the

new a c t i ons . Those motions were heard and marked fu l ly

submit ted on January 26, 2011.

I I . THE FACTS ALLEGED

A. Background

Fami l i a r i t y with the genera l background of t h i s case

and p r i o r l i t i g a t i o n between the p a r t i e s i s assumed. Th e

a l lega t ions as descr ibed in c on t r a c t s cases a re repea ted i n p a r t

as re levant to the i s sues presen ted by th e i n s t a n t motions.

According to th e i n s t a n t Complaints , " [ u ] n t i l it f i l ed

fo r bankruptcy on August 24, 2009, TBW was th e l a r g e s t non-

depos i ta ry r e s i d e n t i a l mortgage l ender in the United Sta tes / l and

was "respons ib le fo r or ig ina t ing approximately $3 0 b i l l i on in

new loans in 2008." DB I I Compl. 12; BNP I I Compl. 12.)

4




- - -

TBW crea t ed Ocala Funding LLC ("Ocala" o r the "Ocala

Fac i l i ty" ) to provide l i q u id i t y funding to TBW's mortgage

or ig ina t ion bus iness pending the sa le of mortgages or ig ina ted or

purchased by TBW to the Federa l Home Loan Mortgage Corpora t ion

("Freddie Mac") and othe rs . I I Compl. I , 13; BNP I I

Compl. I , 13.) Ocala ra i sed cash by i s suing l i q u id i t y notes

in tw o se r i e s Ser ies 2005 1 Secured Liquid i ty Notes ( the

"2005-1 Notes") and Ser ies 2008 1 Secured Liquid i ty Notes ( the

"2008-1 Notes") ( co l lec t ive ly , the "Ocala Notes") . Pl a i n t i f f s

aver t ha t BNP i s the owner of I 852 of the outs tanding 2005 1

Notes, which it purchased fo r $480.7 mil l ion , and t ha t DB i s the

owner of a l l of the 2,126 outs tanding 2008-1 Notes, purchased

fo r over $1.2 b i l l i on . See BNP I I CampI. 2, 14-17; DB I I

CampI. 2, 3, 14.) BoA served in severa l d i s t i n c t bu t re l a t ed

capac i t i e s fo r the Ocala Fac i l i t y : as Indenture Trus tee ,

Col la te ra l Agent, Deposi tary and Custodian. The Loans

cons t i tu ted c o l l a t e r a l backing the Notes.

The cont rac tua l r igh t s and r e sp o n s ib i l i t i e s of BoA,

TBW, Ocala, DB and the BNP Pl a i n t i f f s with r espec t to the Ocala

Fac i l i t y are se t out in the fol lowing Ocala Fac i l i t y Documents:

the 2008 Base Indenture ; the 2008 Secur i ty Agreement; the 2005-1

Deposi tary Agreement ( re la t ing to the 2005 1 Notes and upon

which the BNP Pl a i n t i f f s sued in i t s cont rac t s case) and 2008 1

5




-----

Deposi tary Agreement ( re la t ing to the 2008-1 Notes and upon

which DB sued in i t s cont rac t s case ) ; the 2008 Custod ia l

Agreement; and the March 2009 Le t t e r .

In Augustl 2009 1 TBW/s of f i ces were ra ided by law

enforcement au tho r i t i e s TBW s topped or ig ina t ing mortgages and

Freddie Mac te rminated TBW/s e l i g ib i l i t y to s e l l and se rv ice

Freddie Mac loans . On August 10 1 2009 1 BoA declared an Event of

Defau l t under th e Base Indenture . In the wake

col lapse l Ocala has fa i led to repay the money owed to DB and BNP

in the i r capaci ty as holders of the Ocala Notes.

B. The Conversion Alleged

Th e i ns t an t Complaints lege t ha t BoA ac t ing as

Col la te ra l Agent fo r the benef i t of Pla in t i f f s l per fec ted i t s

f i r s t - p r i o r i t y secur i ty i n t e re s t in the Loans bY I among othe r

th ings l t aking possess ion o f them. I I Compl. 17 18; BNP

I I Compl. 17-18. ) BoA then sent the Loans to Colon ia l Bank

under a se r i e s of ba i lee l e t t e r s ( the "Bai lee Let ters" ) . (DB I I

Compl. 18; BNP I I Compl. 18.) These l e t t e r s af f i rmed t ha t

th e Loans -cons t i tu t e a por t ion th e Assigned Col la t e ra l as

def ined in the Secur i ty Agreement" and t h a t - [e lach of the

6




Mortgage Notes/ Mortgages and Assignments of Mortgages i s

sub jec t to a s e c u r i t y i n t e r e s t in favor of the C o l l a t e r a l Agent

fo r the benef i t of the Secured Par t i e s" i . e . BNP and DB). DB

! ! Compl. 19; BNP I I Compl. 19.) The Bai lee L e t t e r s

requi red t h a t the purchase pr ice fo r the Loans be wired to the

Ocala Funding C o l l a t e r a l Account a t Bank of America (No.

722493.4) and s t a t ed tha t "u n t i l payment t h e re f o r i s received/

the aforesa id s e c u r i t y i n t e re s t t h e re in w i l l remain in f u l l

force and e f fec t / and you sh a l l hold possess ion of such Assigned

Col la te ra l and the documenta t ion evidenc ing same i n t r u s t as

cus todian / agent / and ba i lee fo r and on beha l f o f the Secured

Par t i e s . 1I DB I I Compl. 20; BNP I I Compl. 20.)

P l a i n t i f f s a l lege th a t desp i t e t h i s / the purchase

pr ice of the Loans was never sen t to the Ocala Funding

Col la te ra l Account/ and any sa le proceeds rece ived on the Loans

were not pa id to Ocala or P l a i n t i f f s . (DB I I Compl. 21; BNP I I

Compl. 21.) On August 11/ 2009/ fol lowing the co l l apse of

TWB/ BoA/ ac t ing as c o l l a t e r a l agent and cus tod ian of Ocala /

demanded t ha t t ha t Colonia l Bank re tu rn the Loans. ___1 Compl.

23(a) ; BNP I I Compl. 23(a ) . ) On August 12, 2009 1 BoA

commenced an ac t ion in Southern D i s t r i c t of Flor ida aga ins t

Colonial Bank l v. Colonial Bank, No. 09 Civ.

22384 ( the "Colonial Act ion ll a s s e r t i n g BoA's ownership,

7




i n t e r e s t in the Loans, as Col la te ra l Agent. (DB I I Compl.

23(b) i BNP I I Compl. 23(b) . ) On August 24, 2009, BoA

commenced a second ac t ion in the Southern D i s t r i c t of Flor ida ,

Bank of America NA v. Taylor , Bean & Whitaker Mort. Corp. , No.

09 Civ. 22478 (the "TBW Action") , s imi l a r ly a s s e r t i n g Ocala ' s

ownership i n t e re s t in the Loans t h a t they are the proper ty of

BoA as C o l l a t e r a l agent fo r the secured p a r t i e s i . e .

Pl a i n t i f f s ) . DB I I Compl. 23(c) i BNP I I Compl. 23(c ) . )

P l a i n t i f f s a l l ege t h a t unbeknownst to them and desp i t e

BoA's repea ted r epresen ta t ions t h a t the Loans were being held by

BoA as co l l a t e ra l agent fo r the benef i t of Pl a i n t i f f s and

secur ing Oca la ' s ob l i ga t i ons to P l a i n t i f f s under th e Notes (DB

II Compl. 22i BNP I I Compl. 22 . ) , BoA en te red in to a

t ransac t ion to buy the Loans from TBW under an Amended and

Resta ted Mortgage Loan P a r t i c ip a t i o n Purchase and Sale Agreement

( the "Early Purchase Fac i l i ty" ) ente red in to on May 4, 2009.

DB I I Compl. 24-25i BNP I I Compl. 24-25.) P l a i n t i f f s

a l l ege t h a t t h e r e a f t e r , BoA sold "near ly a l l " of the Loans to

Freddie Mac and rece ived s a l e s proceeds fo r the Loans from

Freddie Mac but did not pay the Ocala Funding C o l l a t e r a l Account

o r P l a i n t i f f s fo r the Loans o r otherwise send th e sa le proceeds

to the Col la te ra l Account o r P l a i n t i f f s . (DB I I Compl. 26i

BNP I I Compl. 26 27.)

8




I I I . STANDARD OF REVIEW

On a motion to dismiss pursuant to Rule 12, a l l

f ac tua l a l l e g a t i o n s in the complaint are accepted as t r u e , and

I in fe rences are drawn in favor of the p leader . Mil l s v . Polar

Molecular Corp. , 12 F.3d 1170, 1174 (2 d Cir . 1993). The i s sue

" is not whether a p l a i n t i f f wi l l u l t ima te ly p re v a i l but whether

the c la imant i s en t i t l ed to o f f e r evidence to suppor t the

c la ims ." Vi II Inc. v. Town of Darien, 56 F.3d 375, 378

(2 d Ci r . 1995) (quoting Scheuer v . Rhodes, 41 6 U.S. 232, 235-36

(1974)) .

To surv ive a motion to dismiss pursuant to Rule

12 (b) (6) , "a complaint must conta in su f f i c i en t f ac tua l matte r ,

accepted as t rue , to ' s t a t e a cla im to r e l i e f t h a t i s aus ib le

on i t s face. '11 Ashcrof t v . Iqba l , - - U.S. --I 129 S. C t. 1937,

1949 (2009) (quoting Bel l At l . Corp. v . Twombly, 550 U.S. 544,

570 (2007)) Pl a i n t i f f s must a l lege su f f i c i en t fac t s to

"nudger] t h e i r cla ims across the l ine from conceivable to

p laus ib le . " Twombly, 550 U. S. a t 570. Though t he cour t must

accept the f ac tua l a l l ega t ions of a complaint as t rue , it i s

"not bound to accep t as t rue a l e ga l conclusion couched as a

9




f ac tua l a l l e g a t i o n . " Iqba l 129 S. Ct. a t 1949 (quot ing Twombly I

55 0 U.S. a t 555) .

IV. CLAIM DUPLICATION

At the t h resho ld l BoA argues t h a t th e convers ion

ac t ions should be dismissed as dupl i ca t ive and an improper

e f fo r t a t c la im-sp l i t t ing . (BoA Mem. 1 .) According to BoAI the

new cla ims a s se r t i n j u r i e s a r i s i n g from the same f a i l u r e by

Ocala to pay its ob l i ga t i ons on the same se r i e s of Notesl

t h a t

Pla in t i f f s a l lege the same dut i es of BoA to preserve Ocala/s

asse t s under the Secur i ty Agreement and t h a t the damages

Pla in t i f f s seek a re a d i s c re t e subse t o f the damages they a re

demanding in the cont rac t ac t ions . (BoA Mem. 2 .)

"As p a r t of i t s genera l power to admi n i s te r i t s

docket a d i s t r i c t cou r t may s tay or dismiss a s u i t " where it i s

"dupl i ca t ive of another federa l cour t s u i t . Cur t i s v. Ci t ibank lI

N.A'I 226 F.3d 133 1 138 (2d Cir . 2006). As with re s ud ica t a

cha l lenges arguments on t h i s ground may proper ly be made v ia a

motion to dismiss . See e . g ' l Vega v. Rel l 1 No. 09 Civ. 737 1

2011 WL 2471295 1 a t *11-*12 (D.Conn. June 211 2011) i New Hyde

Park Car Care Center , Inc . v . Cumberland Farms Inc . , No. 09

10




Civ. 1535, 2011 WL 2462753, a t *2 (E.D.N.Y. June 17, 2011) i see

a l so Thompson v. County of Frankl in , 15 F.3d 245 1 253 (2d Ci r .

1994) ("Res jud ica ta cha l lenges may proper ly be ra i sed v ia a

motion to dismiss fo r fa i lu re to s t a t e a claim under Rule

12 (b) (6) " ) . In cons ider ing the "complex problems" t h a t mul t ip le

federa l f i l i n g s can produce the Second Circu i t has noted t h a t

t he re i s no " r i g i d t e s t " but i ns t ead t h a t a d i s t r i c t cou r t i s

requi red to "cons ider th e e q u i t i e s of the s i t u a t io n when

exerc i s ing i t s d i s c re t i o n . " Cur t i s , 22 6 F.3d a t 138. "A cour t

faced with a dupl i ca t ive s u i t wi l l commonly s tay the second

s u i t , dismiss it without pre jud ice en jo in the p ar t i e s from

proceeding with it, o r conso l ida te the two a c t i o n s . " Id .

( c i t a t i o n s omit ted) .

Fi r s t , BoA contends t h a t d i smi s sa l with pre jud ice i s

app rop r i a te because in f i l i n g the convers ion a c t i ons , P l a i n t i f f s

have improperly a t tempted to "expand t h e i r l e g a l r i g h t s , " Id . a t

140, and " s e t s a i l fo r the hopefu l ly more favorab le waters of

another d i s t r i c t / " Semmes Motors Inc ' l v . Ford Motor Co. , 42 9

F.2d 11971

1203 (2 d Cir . 1970), in orde r to avoid th e

j u r i sd i c t i o n of the cour t and e f f e c t of any adverse ru l ing in

the cont rac t s cases . However, t he re i s no ind ica t ion of bad

f a i th or d i l a t o r y motive here .

11




Th e hi s to ry of the Colonia l Action i s s ign i f ican t in

t h i s regard . As BoA desc r ibes l Defendant "f i l ed th e Colonia l

Bank ac t ion in August 2009 to recover ce r t a in mortgage loans

t ha t Colonia l wa s holding when Ocala co l l apsed . " (BoA Reply

Mem. 7 n.4.)3 Pl a i n t i f f s a s se r t t h a t they d id not "d iscover[]

t ha t BoA I in i t s i nd iv idua l capac i ty had purchased" the

Loans u n t i l July and August of 2010. (PIs. Opp. 5.) At th e t ime

the convers ion ac t ions were f i l ed in August of 2010 1 the

Colonial Action was pending l and BoA had appeared before the

Flor ida cour t in the Colonia l Action and t h a t cour t had

considered Ocala ls ownership of the mortgages a t i s sue in t h i s

case . Pl a i n t i f f i l ed not ices of re l a t ed cases with the

Flor ida cour t l i s t i ng the Colonia l Action and con t rac t cases l

and provided t h i s Court with copies of the Complaints and

re l a t ed not ices from the conversion cases on August 30 1 2010.

BNP I I Compl. , 23 n.2j BNP III Docket N o . 5 & 13j DB III

Docket Nos. 4 .) Severa l weeks a f t e r P l a i n t i f f s f i l ed the

convers ion ac t ions l BoA provided Pl a i n t i f f s with wri t t en not i ce

of i t s i n t e n t to abandon th e Colonial Action and have Pl a i n t i f f s

take over t h a t l i t i ga t ion in i t s s tead l which Pl a i n t i f f s

decl ined to do. On October 13 1 2010 1 BoA volun ta r i ly dismissed

BoA's conten t ion t h a t Pla in t i f f s " ins t ruc ted BoA to f i l e th e Colonia l

Bank act ion, an d even wrote the f i r s t d r a f t of the complaint" (BoA Mem. 7 n.4

( c i t ing Decl. of Pa t r i ck L. Robson 2)) i s of no moment. Ably r epresen ted

as it i s , Defendant cannot plaus ib ly contend t h a t it wa s not r e spons ib le fo r

the Colonia l Action o r the pos i t ions it took before t h a t cour t .

12




the Colon ia l Action without pre jud ice and t h e rea f t e r f i l ed a

motion in the cont rac t Actions to en jo in the convers ion ac t ions

in Flor ida . Th e p ar t i e s then jo i n t l y moved to t r ansfe r red the

conversion cases to th i s cour t . This hi s to ry does not ind ica te

t h a t Pl a i n t i f f s were at tempt ing to se t s a i l fo r a more favorab le

judge or cour t in choosing to f i l e the i n s t a n t act ions in

Flor ida .

Second, BoA contends t h a t the convers ion cases should

be dismissed as dupl ica t ive . The ru le aga ins t dup l ica t ive

l i t i ga t ion i s re l a t ed to , but d i s t i n c t from, the doc t r ine of re s

udica t a . Cur t i s , 226 F.3d a t 138. The power to dismiss

dupl ica t ive su i t s i s meant to fos t e r j u d i c i a l economy and the

"comprehensive dispos i t ion of l i t i g a t io n " as wel l as t o p ro t e c t

p ar t i e s from the vexa t ion of concurren t l i t i ga t ion over the same

subjec t . See Id . (c i t a t ions omitted) . In assess ing dupl ica t ion

between claims o r act ions , nthe f ac t t h a t the f i r s t and second

su i t s involved the same p ar t i e s , s imi la r l ega l i s sues , s imi la r

f ac t s , o r es sen t i a l l y the same type of wrongful conduct i s n o t

di spos i t ive . " Maharaj v . BankAmerica Corp. , 128 F.3d 94, 97 (2d

Cir . 1997) . Ins tead, New York 's " t ransac t iona l approach"

focuses on "how the fac ts are re l a t ed in t ime, space, or ig in or

mot iva t ion i whether they form a convenient t r i a l uni t ; and

whether t r ea t ing them as a u n i t conforms to the p a r t i e s '

13




expecta t ions ll in order to determine " i f the ac t ions are

grounded on the same gravamen of the wrong. II Yeiser v . GMAC

Mortg. Corp. , 535 F. Supp. 2d 413 t 421 (S.D.N.Y. 2008) (c i t ing

Marinel l i Assocs. v. Helmsley-Noyes CO. t 705 N.Y.S.2d 571, 57 5

76 (N.Y. App. Div. 2000)) . In so doing cour t s consider

" 'whether the same evidence i s needed to suppor t both c la ims,

and whether the fac t s e ssen t i a l to the second were presen t in

the f i r s t . t i l Prime . Co. Inc . v. St , 904 F.2d 811, 816 (2d Cir . 1990) (quoting N.L.R.B. v. United Technologies

Corp. , 706 F.2d 1254 t 1260 (2d Cir . 1983)) i accord Tucker v .

Arthur Andersen & Co., 646 F.2d 721, 727 (2d Cir . 1981) i

Herendeen v. Champion I n t ' l Corp. , 525 F.2d 130, 13 3 34 (2d Cir .

1975) .

Pla in t i f f s ' conversion and cont rac t cases do not

possess the requ i s i t e measure of i d en t i t y to suppor t di smissa l .

Th e cen t ra l t ransac t ion in the cont rac t ac t ions regards BoA's

cont rac tua l re l a t ionsh ip with Pl a i n t i f f s and i s def ined by the

Ocala Fac i l i t y Documents. The key quest ion in those cases i s

whether BoA breached i t s cont rac tua l and f iduc ia ry ob l iga t ions

under those documents. (BNP I AC 30i DB I AC 32.) In

cont ras t , the core t ransac t ion in the convers ion ac t ion i s

whether BoA unlawful ly asse r ted dominion and cont ro l over Ocala-

owned loans and re ta ined those loans o r the proceeds of those

14




loans fo r i t s own beha l f . BNP II Compl, 4; DB II Compl. 4.)

a i n t i f f s ' cla ims, i f unders tood to be der iva t ive as they urge,

are between Bank of America and it f see "PI. Opp. 3) ,

o r Bank of America and Ocala. 4

Moreover, th e convers ion and c on t r a c t ac t ions se

from se t s of f ac t s tha t are not co-ex tens ive with each othe r and

which would r equ i re d i f f e r e n t discovery. The f ac t s and

discovery cent to th e convers ion ac t ions inc lude : whether

BoA took possess ion and maintained possess ion and a per fec ted

f i r s t pr i o r i ty s e c u r i t y i n t e re s t in the Loans (while ac t ing as

co l l a t e ra l agent ) i whether BoA purchased and d Ocala-owned

loans fo r i t s own account through the Ear ly Purchase Fa c i l i t y ,

inc lud ing whether it pa id Ocala in a manner t h a t r e l eased

Ocala ' s and BoA's ( in i t s capac i ty as c o l l a t e r a l agent ) r igh t s

in the loans ; whether BoA had knowledge ( its i nd iv idua l

capaci ty) of Ocala ' s and BoA's ( in i t s capac i ty as c o l l a t e r a l

agent) cont inued ownership, possessory and secur i ty i n t e re s t s in

the loans ; where the Converted Loans went once BoA purchased

them; and fo r loans t h a t BoA so ld , where the proceeds went.

4 The par t i es d i f f e r as to t he i r understandings of what s o r t of

der iva t ive su i t , i f pled , Pla in t i f f s are asser t ing : Pla in t i f f s argue theyare making der iva t ive claims on behalf of BoA (see PIs. Opp. 23-24), while

BoA a l t e rna te ly t r e a t s P l a i n t i f f s ' claims as der iva t ive of Ocala o r BoA's

r igh ts BoA Reply Mem. 1-2 , 8 10) . The Court f inds , as discussedtha t f f s have not adequately pled der iva t ive claims as to e i the r Ocala

o r BoA.

15




In cont ras t , the cont rac t ac t ions tu rn on BoA's

obl iga t ions to P l a i n t i f f s under the Ocala Fac i l i t y Documents.

Th e key f a c t ua l i s sues in those cases involve : BoA's performance

of i t s obI ions under the Fac i l i t y Documents; th e documents

and other communications between BoA, TBW, Colonia l Bank and/or

other t h i r d -p a r t i e s r e l a t e d t o the Ocala Fac i l i tYi BoA's

prepara t and c e r t i f i c a t i o n of the borrowing base

c e r t i f eS i documents t racking the flow cash and mortgage

loans through the Ocala l i tY i BoA's e f s to r econc i l e

cash and mortgages l eav ing the Ocala Fac i l i t y with the cash and

mortgages enter ing the Ocala Fac i l i tYi and BoA's awareness o r

l a ck the reo f t h a t Ocala was inso lven t and /or whether it took the

requi red ac t ions under the Fac i l i t y Documents to determine

whether Ocala was so lven t .

These plead ings , i f adequate ly pled , are su f f i c i e n t to

e s t i sh convers ion as an ac t ion d i s t i n c t from the breach of

cont rac t c la im. In any event , fo r the reasons se t fo r th i n f ra ,

th e cases a re dismi fo r fa i lu re to s t a t e a c la im. s

To the degree P l a i n t i f f s ' cur ren t claims, as pled on beha l f of

themselves, impl ica te the same wrong l i t i ga t ed in th e cont rac t s cases and

seek r e l i e f fo r th e same los ses under th e Faci l i ty Documents, those claims

are dismissed as dupl i ca t ive . I t i s well es tab l i shed t h a t a t o r t claim

cannot be pred ica ted on a mere breach of cont rac t , but may only succeed i f

th e p l a i n t i f f a l l eges the v io l a t i o n o f an independent duty. See Hargrave v.

Oki Nusery, In c . f 63 6 F.2d 89 7 (2 d Cir . 1980) ( " I f th e only i n t e r e s t a t s take

16




V. THE INSTANT COMPLAINTS FAIL TO STATE A CLAIM FOR CONVERSION

BoA argues t h a t P l a i n t i f f s ' convers ion c la ims a l so

1 to s t a t e a cla im convers ion, and so should be dismissed

on tha t bas i s as i l e . Defendant contends t h a t d i smi s sa l i s

app rop r i a te on tw o grounds: because Pl a i n t i f f s do not a l lege

they owned o r had a r i g h t to posses the Loans a t i s sue o r

because P l a i n t i f f s ' theory d e r iv a t s tanding I s as a

matte r o f law.

F i r s t , BoA argues t h a t even if Pl a i n t i f f s could show

t h a t BoA purchased Ocala a s s e t s when it acqui red p a r t i c i p a t i o n

r igh t s in pools of loans through a separa te se t t ransac t ions

with TBW, the convers ion cla ims f a i l because Pl a i n t i f f s do not

l ege t ha t P l a i n t i f f s eve r owned o r had a r i g h t to possess the

Loans a t i s sue . (BoA Mem. 11.)6

i s tha t of holding the defendant to a promise, th e cour t s have sa id t h a t the

p l a i n t i f f may not t ransmogr i the cont rac t claim in to one fo r t o r t . " ) ;

Wechsler v. Hunt Health Sys. , Ltd, 33 0 F. Supp. 2d 383 (S.D.N.Y. 2004);

Musicland Holding Corp. v . Wachovia Bank, N.A., 386 B.R. 428, 441 (S.D.N.Y.

2008); AD Rendon Commc'ns, Inc . v . Lumina Americas, Inc . , No. 04 civ . 8832,

2007 WL 2962591 (S.D.N.Y. Oct. 10, 2007) (co l l ec t ing cases) ;

995 F. Supp. 41 9 (S.D.N.Y. 1998 .

6 BoA's as s e r t i o n t h a t it purchased cipa t ion in te res t s " in pools of

TBW loans, not the under ly ing loans themselves as Pla in t i f f s contend (BoA

Mem. 11 n.1 ( c i t ing I I AC 24; BNP I I AC 24; S t. John Decl . , Ex. D (EPF

par t ic ipa t ion Agreement) § 8(a) & (c ) a t pp. 19 20}}, i s a ques t ion of f ac t

not su i t ed to re so lu t ion on a motion to dismiss .

17




I t i s an e s se n t i a l element of a claim fo r convers ion

under both New York and Flor ida law t ha t a would-be p l a i n t i f f

must e i th e r own the sub jec t proper ty o r have a r i g h t to

immediate possess ion of i t . ? Cruickshank & Co., Ltd. v . Sorros ,

765 F.2d 20, 25 (2d Cir . 1985) (New York); Ginsberg v . Lennar

Fla . Hol Inc . , 645 So. 2d 490, 499 (Fla. Dis t . Ct. App.

1994) (Florida) i see also Admin. v.

PacifiCorp Capi t a l , In c . , 87 F.3d 44, 50 (2 d Cir . 1996);

Petr<?hawk Energy v . Law Debenture Trus t Co. of N.Y., No.

06 Civ. 9404, 2007 WL 211096, a t *4 (S.D.N.Y. Jan. 29, 2007)

("An e s se n t i a l element of convers ion i s l e g a l ownership or an

immediate super io r r igh t of possess ion to a spec i f i c t h ing . The

Pl a i n t i f f must have ownership, possess ion , or cont ro l . " ) i Global

View Ltd. Venture Capi ta l v. Great Cent. Basin Expl . , L.L.C. ,

288 F. Supp. 2d 473, 47 9 (S.D.N.Y. 2003) ( "p l a i n t i f f must

demonstra te t ha t he has l ega l tit o r an immediate super io r

r igh t of possess ion") i Wild v. Hayes, 68 A.D.3d 1412, 1414 (N.Y.

App. Div. 2009) (p l a in t i f f who "did not own, o r have possessory

r igh t s to , the proper ty when . . cause[] of ac t ion accrued"

lacked s tanding to sue fo r convers ion) ; Edwards v. Landsman, 51

7 Th e par t i es are in agreement t h a t with regard to t h i s i ssue Flor ida and

New York la w are the same and t h a t choice o f law need not be decided on th i s

motion.

18




So. 3d 1208, 1213 (Fla . App. 4 Dis t . , 2011) (same under Flor ida

law) .

Defendants are cor rec t t ha t Pl a i n t i f ' Complaints do

not a l l t h a t they own or have a r i g h t to possess the loans ;

ra the r , they a s se r t t h a t they hold Notes i ssued by Ocala t ha t

were secured by Ocala ' s mortgage loans and othe r a s se t s . (DB I I

Compl. 2; BNP I I Compl. 2 .) Pl a i n t i f f s charac t ze t h e i r

i n t e re s t in the under ly ing Loans as "benef ic ia l" and s ta te t ha t

the Loans were owned by Ocala, and t ha t BoA held a secur i ty

i n t e re s t in those loans as Col la te ra l Agent fo r the b e n e f i t of

the Noteholders . (DB I I Compl. 2, 4, 7, 15 17, 23; BNP I I

Compl. 2, 4, 15 17, 23.) Indeed, a i n t i f f s do not a s se r t

tha t they s ta te a claim fo r conversion based upon t h e i r own

ownership or immediate r igh t to possess ion of the Loans. (Pl .

Opp. 20 ( " P la in t i f f s ' conversion claims are not based upon t h e i r

purpor ted ownership of the Converted Loans ." ) . ) As such, a

di rec t convers ion claim would f a i l on th i s ground. See e . . ,

Old ic Na t ' l T i t l e Ins Co . v . Abst ract . ,

790 N.Y.S.2d 143, 145 (2005).

a i n t i f f s argue t ha t the convers ion c la ims pled a re

not based upon t h e i r own purpor ted ownership of the Loans,

however, but ins tead t ha t they seek to enforce the possessory

19




r igh t s tha t BoA d and holds in i t s capac i ty as c o l l a t e r a l

agent fo r the benef i t of the Pl a i n t i f f s . s . Opp. 20-24) .

The Complaints a l lege t ha t BoA exercised dominion and cont ro l

over the Loans and sa le s proceeds t he reof BNP I I Compo 31

33, 37-39; DB I I Compl. 29-32, 35-38) . Pl a i n t i f f s contend

t h a t they seek r e l i e f " in [ thei r ] own r i g h t and in the s t ead o f

Bank of America, as co l l a t e ra l agent fo r the benef i t of [ the

Pl a i n t i f f s and "demand[] judgment in [P l a in t i f ' ] favor aga ins t

Bank of America. H (BNP I I Compl. 10; DB I I Compl. 8.)

quest ion before the Court, then, i s whether

Pla in t i f f s have adequate ly pled conversion claims in what

Pl a i n t i f f s descr ibe as a der iva t ive capac i ty .

BoA a s se r t s t h a t P l a i n t i f f s ' theory of der iva t ive

s tanding I s on tw o grounds: r s t , Defendants argue t h a t

PI i f f s are not in f ac t suing d e r iv a t i v e ly , t h a t i s , to

recover asse t s o r funds to be paid to Ocala or Bank of America

in i t s capaci ty as Col la te ra l Agent. Second, Defendants a s se r t

tha t even i f a in t i f f s purpor ted to seek recovery on behal f of

Ocala, the i r claim would f a i l because no re levan t con t rac t o r

lega l au thor i ty au thor i zes them to do so.

20




P l a i n t i f f s respond they have adequa te ly p led t h a t they

seek to enforce th e possessory r i g h t s t h a t BoA he ld and holds in

the Loans in i t s capac i ty as co l l a t e ra l agent (PIs . Opp. 20 . ) ,

and t h a t P l a i n t i f f s have s tanding to sue d e r iv a t i v e ly where BoA

would otherwise requi red to "sue i t s e l f " (PIs . Opp. 23) . For

t h i s propos i t ion , pI i f f s re ly on cases involving shareholder

der iva t ive ac t ions , the ___________ doc t r ine , ande s tu i cases

analogous to them o r applying t h e i r under ly ing p r i n c i p l e s .

The cases c i t ed by P l a i n t i f f s involve der iva t ive

aims in which a benef i c i a ry s t eps in to the shoes of another

and seeks a remedy, not fo r i t s e l f , bu t on the o t h e r ' s beha l f .

See 18 N.Y.2d 540, 547 (1966)

( l imi ted pa r t ne r s may bring der iva t ive s u i t s on beha l f of the

par tnersh ip) i __v__ ____ 276 N.Y. 21 5 (1937)

(al lowing shareholder der iva t ive ac t ion) i Caprer v . Nussbaum, 36

A.D.3d 176, 189 (N.Y. App. Div. 2006) (permi t t ing condominium

u n i t owners to sue on beha l f o f the condominium) i Velez v.

Feins t e in , 451 N.Y.S.2d 110, 115 (App. Div. 1982) (permi t t ing

benef i c i a ry to bring s u i t on beha l f o f the t r u s t ) .

Courts have repea ted ly he ld t h a t th e subs t an t ive r i g h t

in a s tockholder ' s der iva t ive s u i t i s t h a t of the corpora t ion ,

and not t ha t of the s tockholders . See Ross v. Bernhard , 39 6

21




U.S. 531, 538-39 (1970) i Koster v . Lumbermens Mut. Cas. Co. , 330

U.S. 518, 522 23 (1947) i . Tobin, 548 F.2d 408, 411

(2 d Ci r . 1976) i Vincel v . White Motor Corp . , 52 1 F.2d 1113, 1118

(2d Cir . 1975) i v . Berndt , 466 F.2d 251, 255-56 (2d

c i r . 1972) . As th e Second C i r c u i t has expla ined:

A s tockholder ' s de r i va t i ve ac t ion c o n s i s t s

of only one c la im- the corpora te claim a ga i n s t the

a l l eged wrongdoers. The a l l eged in ju ry i n f l i c t e d

upon the corpora t ion i s regarded as a f f e c t i n g

only the co rpo ra t i on . The f ac t t h a t the in ju ry

may i nd i rec t ly harm a s tockholder by diminish ing

the value h is corpora te shares does not bestow

upon him a r i g h t to sue on h is own beha l f to

recover damages.

Papi l sky , 46 6 F.2d a t 255. In shareholder der iva t ive ac t ions it

i s the corpora t ion , not th e shareholders who br ing s u i t , t h a t

recovers . The sharehol de r i va t i ve case to which P l a i n t i f f s

poin t , Koral v . Savory, In c . , 276 N.Y. 215, no te s t h a t th e

p l a i n t i f f complained of "a l l eged wrongs done to the co rpo ra t i on

and he asks t h a t the damages fo r such wrongs be pa id to the

corpora t ion to i t s rece ive r . " Id . a t 217.

Likewise , the c e s tu i t r u s t doc t r ine permi ts a

t r u s t benef i c i a ry to a s se r t c la ims on beha l f of th e t r u s t when

th e t r u s t e e f a i l s or re fu se s to do so . See Velez r 87 A.D.2d a t

314 ("Where a claim e x i s t s in favor o f th e t r u s t (proper ly

speaking , of the t r u s t e e s in t h e i r t r u s t capac i ty ) aga ins t t h i r d

22




8

persons and the t rus t ees a re under a duty to enforce t h a t cla im

and have improperly and u n j u s t i f i a b ly f a i l e d to do so , th e

b e n e f i c i a r i e s may bring a s u i t on beha l f o f the t r u s t , analogous

to s tockho l de rs ' de r i va t su i t s on beha l f o f a corpora t ion . " )

Pla in t i f f s fu r the r point to Caprer , a case ho ld ing t h a t

condominium owners may in some i ns t ances sue d e r iv a t i v e ly on the

condominium's beha l f . Caprer , 36 A.D.3d 176. In t ha t case , the

cour t pe rmi t ted the p l a i n t i f to sue fo r recovery to the

condominium, but found t h a t they lacked s tanding to a s se r t

ind iv idua l c la ims . 36 A.D.3d a t 182 86. Simi la r ly , in Rivie ra ,

the cour t extended the ces tu i doc t r ine to l imi t ed pa r t ne r s , and the p l a i n t i f f s were pe rmi t t ed to sue on beha l f

the par tne r sh ip fo r recovery to i t . Rivie ra , 18 N.Y.2d a t 547.

P l a i n t i f f s ' convers ion Complain ts s t a t e t h a t they seek

judgment in t h e i r favor . BNP I I Compl. 10i DB I I Compl. 8.)

They are not f ac t su ing der iva t ive ly , bu t seek recovery to

lthemselves. This po i n t i s conf i rmed by Pl a i n t i f f s concession

t h a t the proposed recovery here would over lap with the damages

Under the ces tu i que t r us t doc t r ine , p l a i n t i f f s must general plead

demand an d r efusa l or excuse fo r not making such demand. See Velez, 87

A.D.2d a t 31 5 ("In an ac t ion brought by a benef ic i a ry on beha l f o f the t r us t ,

the benef ic i a ry must show why he had th e r igh t to exerc i se th e power . . . to

br ing a s u i t on behalf of the t r us t . This w i l l normally require e i t h e r a

showing of a demand on th e t rus tees to br ing the su i t , and of a r efusa l so

u n ju s t i f i ab l e as to co n s t i t u t e an abuse of th e t r u s t e e ' s d i s c r e t i o n , o r a

showing t h a t s u i t should be brought and t h a t because of the t r u s t ee s '

co n f l i c t of i n t e r e s t , o r some othe r reason, it i s f u t i l e to make such a

demand.") .

23




sought in the 2009 ac t ions (PIs . Opp. a t 16) I where Pl a i n t i f f s

are pla in ly suing fo r t h e i r own los ses .

In sum , although the Pl a i n t i f f s c a l l the conversion

cases "der iva t Pl a i n t i f f s are not in fac t suing fo r theI I

benef i t of any othe r en t i t y , but ins tead fo r t h e i r own los ses .

Their cla ims are not der iva t ive and , as such , the analogy to

de r iva t ive cla ims , in which a par ty may pursue a claim belonging

to someone se t does not apply here .

Pl a i n t i f f s add i t iona l ly poin t to Wireless

Telegraph Company v. Radio Corporat ion of America , 269 U.S. 459

(1926) and Manning v. Mil le r Music Corpora t ion, 174 F. Supp. 19 2

(S.D.N.Y. 1959) in suppor t of t h e i r der iva t ive theory.

In Wireless , the Supreme Court recognized

the r i g h t of an exclus ive l icensee t o jo in the patent -owner as a

co - p la in t i f f in an inf r ingement act ion , when the l a t t e r dec l ines

to jo in s u i t aga ins t a t h i rd -pa r ty in f r inge r . 269 U.S. a t 467-

75. In Manning, the cour t permi t ted composers to br ing a claim

copyr ight inf r ingement aga ins t a t h i rd par ty where the

publ i sher and copyr ight p ro p r i e to r refused to do so . To the

24




9

ex ten t Independent Wireless 9or Manni upheld the l i cen see ' s o r

composers ' r igh t s in themselves to sue t h i rd par ty i n f r inge rs ,

both cases are s t ingu i shab le here . Both Independent Wireless

and Manning involved su i t e s , r espec t ly , under the pa ten t and

copyr ight ac t s , and the Courts in both cases noted the unique

re la t ionsh ip between an exclus ive l i censee and a pa ten t owner,

Independent Wireless , 269 U.S. a t 467-71, and between a composer

and a copyr ight propr ie to r , 174 F. Supp a t 195 96

(not ing " the pecu l ia r re la t ionsh ip between the au thor and h is

publ i sher") Pl a i n t i f f s have pointed to no a u th o r i t y suppor t ing

the propos ion t h a t beare r s of commercial paper , such as

themselves, may br ing su i t s fo r conversion aga ins t a c o l l a t e r a l

agent who legedly conver ts co l l a t e ra l in i s sue . Because

Pl a i n t i f f s possess cont rac t s aims aga ins t BoA, they are not

without redress , as the Court noted i n d i c t a in Independent

Wireless a l icensee would be were a pa ten tee to be an i n f r inge r .

See 269 U.S. 467-68.

Wireless the Court found t h a t were th e pa ten t owner not

joined as a p l a i n t i f f , th e ac t ion would not be maintainable under th e pa ten t

laws "but only an ac t ion in equi ty , based on th e cont rac t r igh ts of the

l icensee under the l i cense and a s t ranger ' s v io l a t i o n o f them." 269 U.S. a t

466. Accordingly, the cour t recognized " th a t t he re i s a t endency in cour t s

of equi ty to en jo in the v io l a t i o n of cont rac t r i g h t s which are invaded by

st rangers in a d i r ec t act ion by th e par ty in ju red , ins t ead of compell ing a

roundabout r e s o r t to a remedy through th e covenant , express or implied, of

the o the r cont rac t ing par ty . But such a shor t cu t , however des i r ab le , i s notpossible in a case l ike t h i s . " Here, however, t he re i s no th i rd party ,

only the cont rac t ing par t i es , and a s u i t between them i s no t roundabout bu t

ongoing in the cont rac t s cases .

25




More fundamentally, in so fa r as Pla in t i f f s re ly on

these cases the propos i t ion t ha t a in t i f f s possess a d i rec t

conversion aim agains t BoA, these aims a re barred as

dupl ica t ive the cont rac t cases , see , 636 F.2d 897;

Wechsler, 330 F. Supp. 2d 383, Musicland HoI , 386 B.R. 428,

441, AD Rendon, 2007 WL 2962591; ESI, Inc . , 995 F. Supp. 419,

and fo r f a i lu re to s ta te a cla im, as Pla in t i f f s have not pled

t ha t they own o r have a r igh t to immediate possess ion of

Loans. See, Old Republic, 790 N.Y.S.2d a t 145.

Final ly , BoA as se r t s t h a t even i f Pla in t i f f s purpor ted

to recovery der iva t ive ly , t he i r claim would f a i l because no

re cont rac t o r l ega l author i ty authorizes them to do so .

The Court decl ines to reach th i s i s sue because Pla in t i f f s have

not pled a der iva t ive ac t ion .

26




VI. CONCLUSION

Based upon the foregoing, BoA's motion to smiss i s

gran ted with leave to rep lead wi th in 30 days .

I t i s so ordered .

New York, NY /

August t -F' 2011 ROBERT W. SWEET

U.S.D.J .

27
