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Long Beach Securities Corp. v. National Credit Union Administration Board

United States District Court, District of Columbia

May 7, 2018

LONG BEACH SECURITIES CORP., Plaintiff,
v.
NATIONAL CREDIT UNION ADMINISTRATION BOARD, as Liquidating Agent of Southwest Corporate Federal Credit Union and Members United Corporate Federal Credit Union, Defendant.

          MEMORANDUM OPINION

          TREVOR N. McFADDEN UNITED STATES DISTRICT JUDGE

         This case represents one piece of the litigation resulting from the 2008 financial crisis. The Plaintiff, Long Beach Securities Corporation, previously settled a suit with the National Credit Union Administration Board over certain residential mortgage-backed securities. Long Beach now argues that the settlement agreement requires the Board to relieve Long Beach of its liability for a third-party indemnity claim based on those same securities, or, alternatively, that unjust enrichment principles require the same result. I conclude that one of Long Beach's two contract arguments, and the unjust enrichment count, survive the Board's Motion to Dismiss.

         I. BACKGROUND

         The National Credit Union Administration is an independent federal agency that charters and regulates federal credit unions "under the management of a National Credit Union Administration Board." 12 U.S.C. § 1752a; Compl. 1. Beginning in 2008, some credit unions under the Board's authority were decimated by failed investments in residential mortgage-backed securities, and the Board stepped in to act first as the credit unions' conservator, and ultimately as their liquidating agent. Def.'s Mot. Dismiss 2-3. In this liquidating agent capacity, the Board filed civil cases against various entities that had been involved in selling the securities to the credit unions-suits that led to this case.

         A. The Board Settles with JPMorgan and Long Beach

         In 2011-2013, the Board filed four suits against entities owned directly or indirectly by JPMorgan Chase & Co. (JPMorgan), "relating to the purchase of residential mortgage-backed securities" by credit unions then in liquidation. Compl. ¶ 1. Long Beach Securities Corporation (Long Beach) was included in that suit as "a subsidiary of non-party JPMorgan Chase Bank, NA., which, in turn, is a wholly owned bank subsidiary of JPMorgan." Id. ¶¶ 1, 8. JPMorgan entered into a global settlement of all four cases, paying the Board over $1.4 billion under a Settlement Agreement signed in November 2013. 7tf.¶ 1, Ex. A, ECF No. 1-1 (Settlement Agreement). The agreement included two paragraphs dealing with the Board's suits against third parties-sections 8(a) and 8(b)-that Long Beach now attempts to enforce in this action. Settlement Agreement 7-8.

         B. The Board Accepts an Offer of Judgment Against Credit Suisse

         When the Board settled with JPMorgan, it was also in active litigation against Credit Suisse Securities (USA) LLC and Credit Suisse First Boston Mortgage Securities Corp. Compl. ¶ 3. That suit alleged, among other things, that Credit Suisse USA had made "misstatements concerning the standards applied in originating the mortgage loans" associated with two securities transactions covered by the JPMorgan Settlement Agreement. Id. ¶ 28. The Credit Suisse defendants made an offer of judgment "that involved paying the [] Board the full amount of damages it was claiming ... while otherwise limiting the judgment to one that would have no precedential or res judicata effect and treating it as though it were a settlement of disputed matters." Id. ¶ 29. The Board had 14 days to accept the offer or it would lapse, and the Board would have to pay the defendants' "costs incurred after the offer was made" unless they later obtained a more favorable judgment. Fed.R.Civ.P. 68. The Board accepted the offer one day before the deadline, and the court in April 2016 entered a Stipulated Judgment for over $50 million, including amounts for pre-judgment interest and attorney's fees that the parties had negotiated. Compl. ¶¶ 30-31. "During the negotiations it had with [the Credit Suisse defendants], the [] Board .. . made no effort to obtain ... a release" "from contribution or indemnity for [Long Beach] or any other JPMorgan entity." Id. ¶ 33. The Board also did not reduce the Stipulated Judgment "to account for [Credit Suisse USA's] alleged indemnification rights against [Long Beach]." Id. ¶ 33.

         C. Long Beach Settles an Indemnity Claim With Credit Suisse

         In two securities transactions with federal credit unions that caused the Board suits, Credit Suisse USA had acted as the underwriter, and Long Beach as the depositor. Id. ¶¶ 3, 23 (the Long Beach Mortgage Loan Trust 2006-1 transaction, and the Long Beach Mortgage Loan Trust 2006-6 transaction). Each transaction had an Underwriting Agreement, under which Long Beach "agreed to indemnify and hold harmless [Credit Suisse] USA against various matters arising out of the [pertinent] Transaction, including liability for alleged misstatements as to matters other than information relating to the underwriters." Id. ¶¶ 24, 26. After the Stipulated Judgment with the Board, Credit Suisse USA "demanded indemnity" from Long Beach in the amount of $ 19.62 million, invoking these Underwriting Agreements. Id. ¶ 34.

         Long Beach, in turn, demanded that the Board "reduce the Stipulated Judgment it obtained against [Credit Suisse USA] and/or otherwise take steps to protect [Long Beach] from [the] indemnification claim. The [] Board steadfastly refused to do so." M¶ 35. When told by the Board that it should file an administrative proof of claim, Long Beach did so. Id. ¶ 36. Meanwhile, Credit Suisse USA "continued to threaten litigation against [Long Beach] in order to seek recovery on its claim for indemnification." Id. Long Beach and Credit Suisse USA agreed to enter "non-binding mediation and, in the event the mediation was unsuccessful, arbitration." Id. ¶ 37. Their agreement to this effect was "drafted ... to allow the [] Board to participate in the mediation discussions and/or arbitration should it choose to do so, " and Long Beach informed the Board of this option in December 2016, ahead of the mediation scheduled for January 10, 2017. Id. The Board did not respond until February 2017-after the mediation session had occurred-stating that "it would not participate in any future mediation or arbitration proceedings." Id. ¶38.

         Although the initial mediation session in January 2017 was unsuccessful, Long Beach and Credit Suisse USA "continued to participate in follow-up discussions with the mediator, " eventually agreeing to settle the "$19.62 million claim for $10 million." Id. ¶39. In April 2017, the two parties entered into an agreement that fully released Credit Suisse USA's claims against Long Beach, and Long Beach paid Credit Suisse USA the $10 million in settlement funds. Id. In June 2017, the Board denied Long Beach's administrative claim. Id.¶ 40.

         D. Long Beach Sues the Board

         In July 2017, Long Beach filed this case against the Board. In Count I of the Complaint, Long Beach argues that the Board has breached the Settlement Agreement by (1) "failing to use its 'good faith and best efforts' to obtain for [Long Beach] a release from [Credit Suisse] USA of claims on the basis of contribution[] [or] indemnification, " and by (2) "refusing to reduce the Stipulated Judgment it obtained in the Credit Suisse Action in an amount sufficient to hold [Long Beach] harmless against [Credit Suisse] USA's claim for indemnification." Id. ¶¶ 44-45. In Count II, Long Beach claims that by benefiting from the $1.4 billion JPMorgan settlement, without reducing that amount or the $50 million Credit Suisse Stipulated Judgment to offset the Credit Suisse USA indemnification claim against Long Beach, the "Board has been unjustly enriched in an amount to be determined at trial." Id. at 15.

         II. LEGAL STANDARDS

         "[A] complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations." Bell Ail. Corp. v. Twornbly, 550 U.S. 544, 555 (2007). That said, "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). "A claim crosses from conceivable to plausible when it contains factual allegations that, if proved, would 'allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'" Banneker Ventures, LLC v. Graham, 798 F.3d 1119, 1.129 (D.C. Cir. 2015) (alteration omitted) (quoting Iqbal, 556 U.S. at 678). In this inquiry, a court must "draw all reasonable inferences from those allegations in the plaintiffs favor, " but it does not "assume the truth of legal conclusions." Id.

         New York law governs the interpretation of this contract, as the parties agree. Settlement Agreement 10 ("This Agreement is governed by and shall be construed in accordance with the laws of the State of New York."). "Under New York law . .. the question of whether a written contract is ambiguous is a question of law for the court." J A Apparel Corp. v. Abboud, 568 F.3d 390, 396 (2d Cir. 2009). "Ambiguity is determined by looking within the four corners of the document, not to outside sources." Id. (citation omitted). Ambiguity does not exist "merely because the parties urge different interpretations, " but rather when the language at issue is "capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.'" Id. at 396-97 (quoting Revson v. Cinque & Cinque, P.C, 221 F.3d 59, 66 (2d Cir. 2000)). "[W]here the contract language creates ambiguity, extrinsic evidence as to the parties' intent may properly be considered, " but "[i]f the contract is unambiguous, its meaning is ... a question of law for the court to decide." Id. at 397. "Contract language is not ambiguous if it has a definite and precise meaning, unattended by danger of misconception in the purport of the [contract] itself, and concerning which there is no reasonable basis for a difference of opinion." Id. at 396 (internal quotation marks and citations omitted).

         "In interpreting an unambiguous contract, the court is to consider its '[p]articular words' not in isolation 'but in the light of the obligation as a whole and the intention of the parties as manifested thereby.'" Id. (citation omitted); Kolbe v. Tibbetts, 3 N.E.3d 1151, 1156 (N.Y. 2013) (same). "[U]nder New York law, words and phrases . . . should be given their plain meaning, and the contract should be construed so as to give full meaning and effect to all of its provisions." Process Am., Inc. v. Cynergy Holdings, LLC, 839 F.3d 125, 133 (2d Cir. 2016) (internal quotation marks and citation omitted).

         III. ...


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