NBKC Memo Supporting Motion to Dismiss

8/12/2019 NBKC Memo Supporting Motion to Dismiss

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IN THE UNITED STATES DISTRICT COURTFOR THE DISTRICT OF MINNESOTARESIDENTIAL FUNDING COMPANY,LLC,

Plaintiff,

v. No. 0:13-cv-03528 (ADM/TNL)

NATIONAL BANK OF KANSAS CITY,

Defendant.

DEFENDANT NATIONAL BANK OF KANSAS CITYS MEMORANDUMOF LAW IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENTOR TO DISMISS THE FIRST AMENDED COMPLAINTDefendant 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 Corporations (RFC)

First Amended Complaint is untimely. Alternatively, RFCs Complaint

should be dismissed with prejudice for failing to state a claim for relief.

BACKGROUNDNBKC 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; plaintiffs counsel admits that pursuant to RFCs

CASE 0:13-cv-03528-ADM-TNL Document 38 Filed 04/16/14 Page 1 of 35


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bankruptcy plan a trust has acquired RFCs assets and is the proper plaintiff

in this action. (RFC Memo. in support of Mot. to Transfer at fn. 1, Dkt. No.

18).1RFC filed this suit on December 16, 2013, alleging claims for breach ofcontract 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 aliathe Bankruptcy

Court does not have jurisdiction over RFCs untimely claims against NBKC,

and RFCs Minnesota forum selection clause precludes transfer. In response

to NBKCs 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 NBKCs predecessor.

NBKC is entitled to judgment as a matter of law because RFCs

indemnification claim is merely a dressed-up breach of contract claim that is

1NBKC seeks judgment against the proper plaintiff, but continues to refer toplaintiff 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 RFCs 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.

FACTS

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

NBKCs predecessor, Horizon National Bank, and Residential Funding

Corporation (RFC).2

(Id.at 7, 10, 39). The Client Contract (Contract),

dated February 13, 2001, governed NBKCs sale of residential mortgage loans

to RFC. (Id. at 7; Contract attached to Am. Compl., Dkt. No. 28-1).3The

Contract purports to incorporate certain representations and warranties

(R&Ws) contained in RFCs Client Guide (Contract at 1, 4), and the

2For purposes of this dispositive motion NBKC presumes Plaintiff hasstanding to pursue these claims on behalf of Residential FundingCorporation, and uses RFC to refer to both.3For purposes of this dispositive motion NBKC presumes it is the successorto the Contract between RFC and Horizon Bank, but NBKC reserves theright 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).

RFCs Client Guide explained that RFC intended to re-sell the

residential mortgage loans NBKC sold RFC:

(II) Loan SecuritizationThe Client recognizes that it is GMAC-RFCs intent to securitizesome or all of the Loans sold to GMAC-RFC by the Client. TheClient agrees to provide GMAC-RFC with all such informationconcerning the Client generally and, if applicable, the Clientsservicing experience, as may be reasonably requested by GMAC-

RFC for inclusion in a prospectus or private placementmemorandum published in connect ion with such securitization.In addition, the Client will cooperate in a similar manner withGMAC-RFC in connect ion with any whole Loan sale or otherdisposition 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&Ws regarding the loans it

sold to the trusts and whole loan investors. (Id.at 25, 36). RFC

admitted that it would breach the R&Ws it gave to trusts and investors

if it re-sold a loan that breached the Client Guide R&Ws 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 RFCs 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&Ws in the Contract. (Am. Compl. at 68-69). RFCs Amended Complaint

lists some of the R&Ws (Am. Compl. 24), and 5 of the purported 4,000 loans

(Am. Compl. 42), but RFC does not expressly allege which R&Ws each loan

breached.

RFCs one count Amended Complaint for indemnification is premised

upon the indemnification provision in the Client Guide:

A212 IndemnificationThe Client shall indemnify GMAC-RFC from all losses, damages,penalties, fines, forfeitures, court costs and reasonable attorneysfees, judgments, and any other costs, fees and expenses resultingfrom any Event of Default. This includes without limitationliabilities arising from (i) any act or failure to act, (ii) any breachof warranty obligation or representation contained in the ClientContract, (iii) any claim demand defense or assertion against orinvolving GMAC-RFC based on or resulting from such breach,(iv) any breach of any representation, warranty or obligationmade by GMAC-RFC in reliance upon any warranty, obligationor representation made by the Client contained in the ClientContract and (v) any untrue statement of a material fact,omission to state a material fact, or false or misleadinginformation 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

as:

A208 Events of DefaultAny one or more of the following events constitute an Event of

Default:(1) The Client has not complied with one or more of therequirements (including any requirement outlined in Chapter 21Client Eligibility) terms or conditions outlined in this ClientGuide or one of the disqualification, suspension or Inactivationevents set forth in the Disqualification Suspension orInactivation Section has occurred or occurs.(2) The Client has breached any agreement outlined orincorporated by reference in the Client Contract or any otheragreement between the Client and GMAC-RFC.

(3) The Client breaches any of the representations, warranties orcovenants set forth in this Client Guide, fails to perform itsobligations under this Client Guide or the Program Documents,makes one or more misleading representations, warranties orcovenants to GMAC-RFC, or has failed to provide GMAC-RFCwith Information in a timely manner, including informationrequired under Regulation AB or any successor regulation, that istrue, 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 ate. (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 informationEach of the Loans delivered and sold to GMAC-RFC meets theapplicable program terms and criteria set forth in this ClientGuide. All information relating to each Loan delivered and sold to

GMACRFC is true, complete and accurate and there are noomissions or material facts. All data provided by the Client toGMAC-RFC relating to any Loan, whether in electronic format,or otherwise, is true and complete and accurately reflects theinformation in the related loan file.

Client Guide at A202(A).

The 37th warranty states:

(KK) No Fraud or MisrepresentationNo fraud or misrepresentation by the Borrower or by theClient, broker, correspondent,appraiser or any independentcontractor retained by the Client, broker, correspondent,appraiser or any employee of any of the foregoing occurredwith respect to or in connection with the origination orunderwriting of any Loan and all Information anddocuments provided to GMAC-RFC in connection with the Loanare complete and accurate.

Client Guide at A202(KK).

RFCs 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 RFCs 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 borrowers 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

RFCs 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 NBKCs 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). NBKCs general ledgers from before 2006,

however, were not converted to the new system. (Id.at 25).

NBKC maintains text file downloads of NBKCs general ledger from the

old Jack Henry system, for dates prior to 2007 (Text File). (Id. at 26). Text

Files from NBKCs 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 NBKCs daily wire transfers (Wire Log) by year. (Id. at 32, 40;

Exs. 2 and 3 to the Dec. are examples of Wire Logs). NBKCs 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 NBKCs 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 NBKCs 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, NBKCs CFO, reviewed NBKCs 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

NBKCs 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 NBKCs 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).

ARGUMENTI. 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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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.

13, 2001).

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. RFCs Indemnification Claim is Time-Barred.The undisputed facts establish that RFCs claim is untimely as a

matter of law.4Summary 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

4RFCs Bankruptcy Petition did not toll or revive untimely claims. (NBKCsMemo. Opposing RFCs Mot. to Transfer at 10-11, Dkt. No. 30).



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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 Whenthe Parties Intend them to Accrue as Reflected in their Contract.RFCs claim for indemnification arises out of provisions in its Client

Guide. (Am. Compl. at 32). NBKCs 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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& Casualty Ins. Co. v. Metropolitan Transit Commn, 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 RFCs indemnification claim at issue.

Masonalso shows that courts are not always precise when examining

Minnesota indemnification law. Masoninvolves 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. RFCs 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&Ws 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&Ws section of the Client Guide. ( A208).

The R&Ws in the Client Guide RFC generally fall into 2 categories.

First, RFC seeks warranties regarding the condition of its client (NBKC),

including inter aliaits 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 RFCs 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 afterRFC 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&Ws 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

later).

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&Ws, 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&Ws 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

withLehman XS Trust Series 2006-4N ex rel. US Bank Nat Assn. 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&Ws 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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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&Ws 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) affd sub nom. Appletree

Square I, Ltd. Pship 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&Ws and pursue a remedy from

NBKC, while also providing NBKC the peace of mind of knowing that stale

claims wont arise many years later.

D.Alternatively RFCs Indemnification Claim Accrued on the LoanSecuritization Date.Alternatively, this Court should determine as a matter of law that

RFCs 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.6(Am. Compl. at 2-

3, 21, 23, 25, 35-36). RFC admits it provided its own R&Ws to investors,

covering the loans it sold. (Am. Compl. at 25, 36). By inference, every loan

NBKC sold RFC, allegedly in violation of NBKCs R&Ws to RFC, constitutes

a loan RFC sold in violation of RFCs R&Ws to the upstream investor.

RFCs 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:

https://www.sec.gov/Archives/edgar/data/1331579/000133157905000002/qs8ss

final.txt.

Upon securitizing these loans, RFC made its own R&Ws to potential

6The court inAce Securitiesconcisely 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&Ws it required from NBKC as to each loan were in turn

R&Ws 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

liability.

In contrast, RFC and NBKC are not tortfeasors, joint or otherwise. The

parties are litigating RFCs 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 liabilityon 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&Ws

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) (trustees claim that sponsor

breached R&Ws in agreement to securitize loans accrued on the closing date

of the trust, when any breach occurred).

III. RFCs Unreasonable Attempt to Toll the Statute of LimitationsBefore Claims Accrue is Unenforceable.Not only will RFC argue that its claims dont 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 RFCs 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.

RFCs 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). RFCs indemnity

provision does not clearly and unequivocally give NBKC notice of RFCs

assertion that the indemnity clause acts to toll the statute of limitations.

RFCs Client Guide purports to force the R&Ws 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, RFCs 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 RFCs 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&Ws 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. RFCS Amended Complaint Fails to State a Plausible Claim.A. RFC Has Pled Itself Out of Court by Admitting NBKC Last SoldRFC a Loan in April 2005.

Alternatively, if the Court denies or declines to rule on NBKCs motion

for summary judgment, NBKC moves for dismissal with prejudice pursuant

to Rule 12(b)(6) because RFCs Amended Complaint admits that NBKC sold

the last loan to RFC in April, 2005, rendering RFCs 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. RFCs 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) andAshcroft 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. Assn v. WMC Mortgage Corp.,

843 F. Supp. 2d 996, 998 (D. Minn. 2012) (citingBell 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 defendants actions constituted breaches, merely alleging

that mortgage fees were unnecessary. Id.The Motleyplaintiffs did not cite



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plead each loan where complaint alleged all of the loansdeviated fromunderwriting 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. RFCs 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

pled them.

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. SeeFDIC 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 RFCs 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. 13cv00497LTB,

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. 2:13cv01397JAMKJM, 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

defendant).

Unlike the foregoing authority, RFCs 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

1013.

CONCLUSIONDefendant 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 RFCs 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 RFCs alleged resulting damages.

Dated: April 16, 2014.

Respectfully submitted,

NATIONAL BANK OF KANSAS CITY/s/ Scott N. Gilbert

One of its attorneys

Admitted Pro Hac Vice:

Nancy A. TempleScott N. GilbertKATTEN & TEMPLE LLP542 South Dearborn Street, 14th FLChicago, Illinois 60605P: (312) 663-0800F: (312) [email protected]

[email protected]

Local Counsel:

Seth LeventhalLEVENTHAL PLLC2100 Rand Tower527 Marquette Ave. SouthMinneapolis, Minnesota 55402P: 612-234-7349F: [email protected]
