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Los Alamos National Bank N. A. v. Fidelity Bank

United States District Court, D. New Mexico

April 9, 2019

LOS ALAMOS NATIONAL BANK, N.A., Plaintiff,
v.
FIDELITY BANK, Defendant.

          MEMORANDUM OPINION AND ORDER

         This matter comes before the Court on Plaintiff/Counter-Defendant Los Alamos National Bank, N.A.'s (LANB) Motion to Dismiss Amended Counterclaim (Motion), filed October 18, 2018. (Doc. 30). Defendant/Counter-Plaintiff Fidelity Bank (Fidelity), filed its Response on November 8, 2018, opposing the Motion. (Doc. 34). LANB filed its Reply on November 21, 2018. (Doc. 35). Having considered the briefing, the record, and the applicable law, the Court grants-in-part LANB's Motion to Dismiss Amended Counterclaim (Doc. 30) and dismisses Count II of the Amended Counterclaim, Breach of Implied Covenant.[1] The Court otherwise denies the Motion.

         I. Background and Procedural History[2]

         This case arises out of alleged breaches of a Mortgage Loan Servicing Rights Purchase Agreement (Agreement) by which LANB sold Fidelity the servicing rights to approximately 4, 500 mortgage loans on real property in northern New Mexico.

         A. The Agreement[3]

         The Agreement contains myriad warranties and representations from LANB, including that, as of the transfer of the servicing rights on January 1, 2018:

• “[a]ll data furnished to [Fidelity] in connection with the Servicing Rights is true and accurate” (Agreement at 4.02.01)
• “[LANB] has good and marketable title to and is the sole owner of the Servicing Rights . . . and is aware of no adverse claims to or encumbrances on such rights” (Agreement at 4.02.03)
• “[t]here are no actions, claims, litigation, lawsuits, or governmental investigations pending or, to the [actual or constructive knowledge of LANB, or based on information contained in its files], threatened and not disclosed to [Fidelity], nor are there Settlement Agreements or investor indemnification agreements entered into . . . that would be binding on [Fidelity], that relate to the Servicing Rights or the Mortgage Loans, other than usual and customary actions such as foreclosure of bankruptcy proceedings (the matter to be disclosed include, but are not limited to, any claims or rights allegedly restricting [Fidelity's] ability to convey or affecting the value of the Servicing Rights)” (Agreement at 4.02.04 (emphasis added))
• “the Mortgaged Property is free and clear of all encumbrances and liens, except for encumbrances permitted under the [Fannie Mae] Guidelines . . .” (Agreement at 4.03.02)
• “[a]ll origination and servicing requirements, obligations and duties of [LANB] as set forth in the [Fannie Mae] Guidelines have been met in all respects” (Agreement at 4.03.05)
• “[a]t the time the Mortgage Loan was originated, there did not exist any circumstances or conditions with respect to the Mortgage, the Mortgaged Property, [or] the Mortgagor . . . that would cause Investors to regard the Mortgage Loan as subject to Sections 5.06 and 5.07 hereof, cause the Mortgage Loan to become delinquent, adversely affect the value or marketability of the Mortgage Loan or otherwise cause the Mortgage Loan or Servicing Rights to be subject to repurchase as provided in this Agreement”[4] (Agreement at 4.03.12)
• “[LANB] has complied in all respects with all [Fannie Mae or other applicable Guidelines] or, prior to [January 1, 2018], will have cured any such non-compliance to bring it into compliance with [the applicable Guidelines] in all respects . . . [and LANB] has not received any notice of alleged violations of the [applicable Guidelines]” (Agreement at 4.03.30)

(Doc. 30-1).

         The Agreement provides Fidelity several options in the event of a “defect” with any of the mortgages whose servicing rights Fidelity purchased. A defect means “a) any representation or warranty by [LANB] which is incorrect, misleading, untrue or otherwise constitutes a breach of [LANB's] obligations with respect to a Mortgage Loan or b) any failure by [LANB] to comply with any covenant, term or condition herein contained with respect to a Mortgage Loan.” (Doc. 30-1) at 6. First, LANB “shall cure such [d]efect” within thirty days. (Agreement at 5.06). In the event the defect cannot be or is not cured, LANB “will repurchase the Servicing Rights to such defective Mortgage Loan not later than the expiration of the thirty (30) day period at the applicable Repurchase Price.” (Id.) “If [LANB] fails to repurchase the Servicing Rights to such defective Mortgage Loan at the time and in the manner provided . . ., [Fidelity] shall have all other rights and remedies provided in this Agreement or by law.” (Id.)

         Fidelity retained additional rights and options if “any [d]efect or other issue that arises out of or results from the origination, delivery or servicing of the Mortgage Loan prior to [January 1, 2018] . . . which, in the reasonable discretion of [Fidelity], adversely affects the value or marketability of the related Mortgage Loan or Servicing Rights. (Id.) If LANB could not or did not cure any of these conditions after the applicable cure period, then LANB “shall, at [Fidelity's] option, (x) repurchase the related Mortgage Loan . . . [or] (y) . . . repurchase the Servicing Rights pertaining to the related Mortgage Loan . . . .” (Agreement at 5.07(c)).

         Finally, Fidelity and LANB “agree that this Agreement shall be construed in accordance with and governed by the laws of the State of Kansas, including its conflict of laws rules.” (Agreement at 6.05).

         B. Access Claims

         The Pueblos of Nambe, Pojoaque, San Ildefonso, and Tesuque (collectively, “the Pueblos”) assert that certain county roads built by the County of Santa Fe trespass on tribal land (Access Claims). According to Fidelity, these Access Claims impact the access roads to approximately 240 real properties subject to mortgages now serviced by Fidelity. Furthermore, disputed access roads cloud title to the mortgaged properties. The Pueblos and the County of Santa Fe have known about and worked on these issues since at least 2012. These Access Claims became the subject of a federal lawsuit in this District in 2015, Northern New Mexicans Protecting Land Water and Rights v. United States of America, et al., 15-CV-559 JB/LF. In addition to the federal lawsuit, newspapers in the Los Alamos area began reporting on these issues as early as July 1, 2015, and continuing into January 2018.

         C. This Lawsuit

         On April 11, 2018, Fidelity wrote to LANB asserting that the Pueblos' Access Claims clouded title to approximately 240 mortgaged properties, rendering those mortgage loans “defective” within the meaning of the Agreement. (Doc. 30-2). Fidelity demanded that LANB repurchase the defective loans.

         LANB refused and filed this declaratory judgment action, seeking a declaration that LANB did not cause a defect in the mortgage loans or servicing rights, has no obligation to repurchase the mortgage loans or servicing rights, and did not breach the Agreement. LANB also seeks attorney's fees, pursuant to the Agreement.

         Fidelity brought contractual and tort counterclaims against LANB, specifically, breach of contract, breach of the implied covenant of good faith and fair dealing, intentional misrepresentation, fraud by silence, and negligent misrepresentation. Fidelity, too, seeks its attorney's fees.

         LANB now moves to dismiss Fidelity's Amended Counterclaim (Doc. 26) for failure to plead the fraud claims with sufficient particularity, as required by Federal Rule of Civil Procedure 9(b), and for failure to state a claim upon which relief can be granted, pursuant to Rule 12(b)(6).[5] (Doc. 30). In the alternative, LANB seeks a more definite statement pursuant to Rule 12(e).

         Because LANB and Fidelity are citizens of different states and the amount in controversy exceeds $75, 000, the Court exercises ...


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