Rescap Liquidating Trust v. PHH Mortgage Corp.

518 B.R. 259, 60 Bankr. Ct. Dec. (CRR) 33, 2014 U.S. Dist. LEXIS 145824, 2014 WL 5068339
CourtDistrict Court, S.D. New York
DecidedOctober 9, 2014
DocketNo. 14 Cv. 05315(JGK)
StatusPublished
Cited by12 cases

This text of 518 B.R. 259 (Rescap Liquidating Trust v. PHH Mortgage Corp.) is published on Counsel Stack Legal Research, covering District Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Rescap Liquidating Trust v. PHH Mortgage Corp., 518 B.R. 259, 60 Bankr. Ct. Dec. (CRR) 33, 2014 U.S. Dist. LEXIS 145824, 2014 WL 5068339 (S.D.N.Y. 2014).

Opinion

OPINION AND ORDER

JOHN G. KOELTL, District Judge.

Plaintiff ResCap Liquidating Trust (“ResCap”), the successor to Residential Funding Corp., LLC (“RFC”), filed this suit against PHH Mortgage Corp. (“PHH Mortgage”) as an adversary proceeding in the Bankruptcy Court for the Southern District of New York. The Amended Complaint alleges state law claims for breach of contract and indemnification. PHH Mortgage moves to withdraw the bankruptcy reference and to transfer this case to the United States District Court for the District of Minnesota. The Court has jurisdiction pursuant to 28 U.S.C. § 1334.1 [262]*262For the reasons explained below, the defendant’s motion is granted.

I.

ResCap’s First Amended Complaint alleges that PHH Mortgage sold over 3,500 mortgage loans to RFC with a combined original balance greater than $945 million. (Am. Compl. ¶¶4, 17). In the RFC-PHH Mortgage agreements, PHH mortgage made representations and warranties concerning the quality of the loans that it sold to RFC. (See Markham Deck Attach. 1, Ex. A, at 23, 26, 30, 32 (Mortgage Loan Flow Purchase, Sale & Servicing Agreement).) These agreements also include a mandatory forum-selection clause:

Each of the parties irrevocably submits to the jurisdiction of any state or federal court located in Hennepin County, Minnesota, over any action, suit or proceeding to enforce or defend any right under this Contract or otherwise arising from any loan sale or servicing relationship existing in connection with this Contract, and each of the parties irrevocably agrees that all claims in respect of any such action or proceeding may be heard or determined in such state or federal court. Each of the parties irrevocably waives the defense of an inconvenient forum to the maintenance of any such action or proceeding and any other substantive or procedural rights or remedies it may have with respect to the maintenance of any such action or proceeding in any such forum.... Each of the parties further agrees not to institute any legal actions or proceedings against the other party ... arising out of or relating to this Contract in any court other than as hereinabove specified in this paragraph 9.

(See Markham Deck Attach. 1, Ex. A, at 3 (Client Contract).)

After purchasing the loans from PHH Mortgage, RFC pooled them into residential-mortgage backed securitization trusts (“RMBS trusts”) or resold them to whole loan pools. (Am. Compl. ¶¶ 21-22.) When it resold and pooled the PHH Mortgage loans, RFC made a number of representations concerning their quality, for which it allegedly relied on PHH Mortgage’s representations. (Am. Compl. ¶ 38.)

Faced with numerous lawsuits because the loans in the RMBS trusts and loan pools defaulted, on May 14, 2012, RFC and fifty affiliated entities voluntarily filed petitions for relief under Chapter 11 of the United States Bankruptcy Code. (Am. Compl. ¶¶ 58, 72.) The RFC petitions were administered jointly before Judge Glenn of the United States Bankruptcy Court for the Southern District of New York. PHH Mortgage filed a proof of claim, requesting $167,759 for expenses incurred from servicing twenty-nine loans on behalf of RFC. (Proof of Claim No. 7173.)

Judge Glenn ultimately approved a global settlement relating to RFC’s RMBS trusts liabilities, and on December 11, 2013, Judge Glenn confirmed the Debtor’s Second Amended Joint Chapter 11 Plan (the “Plan”). In re Residential Capital, LLC, No. 12br12020, Dkt. No. 6066 (Bankr.S.D.N.Y. Dec. 11, 2013). The Plan preserved RFC’s claims against the loan originators and assigned them to ResCap. In re Residential Capital, LLC, No. 12br12020, Dkt. No. 6065, slip op. at ¶¶ 24, 48 (Bankr.S.D.N.Y. Dec. 11, 2013).

[263]*263On December 13, 2013, ResCap filed a complaint against PHH Mortgage in the United States District Court for the District of Minnesota. (Markham Decl. Attach. 1, Ex. A.) The complaint was one of at least sixty filed in that District by Res-Cap against entities that had sold loans to RFC. See Residential Funding Co. v. Cherry Creek Mortg. Co., No. 13cv3449, 2014 WL 1686516, at *1 (D.Minn. Apr. 29, 2014). On February 28, 2014, ResCap voluntarily dismissed the complaint against PHH Mortgage in Minnesota, and on May 13, 2014, filed a complaint against PHH Mortgage in the Bankruptcy Court for the Southern District of New York. The two complaints assert identical causes of action. (Compare Markham Decl. Attach. 1, Ex. A, with Original Compl.) At least seventy related actions remain pending in the Minnesota courts. (September 11, 2014, Tr. at 27.)

On July 11, 2014, the defendant moved to withdraw the bankruptcy reference in this case pursuant to 28 U.S.C. § 157(d) and to transfer venue to the United States District Court for the District of Minnesota pursuant to 28 U.S.C. § 1404(a). Res-Cap filed its First Amended Complaint on July 24, 2014. This Court stayed the adjudication of the defendant’s motion pending Judge Glenn’s decision in Residential Funding Co. v. UBS Real Estate Securities, Inc. (In re Residential Capital, LLC), 515 B.R. 52 (Bankr.S.D.N.Y.2014).

II.

A.

In relevant part, § 157(d) provides that a “district court may withdraw, in whole or in part, any case or proceeding referred [to the bankruptcy court] on its own motion or on a timely motion of any party, for cause shown.” To determine if the petitioner has shown cause, the Second Circuit Court of Appeals held that courts should consider “(1) whether the claim is core or non-core, (2) what is the most efficient use of judicial resources, (3) what is the delay and what are the costs to the parties, (4) what will promote uniformity of bankruptcy administration, (5) what will prevent forum shopping, and (6) other related factors.” S. St. Seaport Ltd. P’ship v. Burger Boys (In re Burger Boys, Inc.), 94 F.3d 755, 762 (2d Cir.1996) (citing Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d 1095, 1101 (2d Cir.1993)).

Under this framework, the threshold question was whether the case involved a core or non-core proceeding, “since it is upon this issue that questions of efficiency and uniformity will turn.” Orion, 4 F.3d at 1101. The Court of Appeals explained that the core or non-core distinction was crucial because the bankruptcy court’s determination of non-core matters was subject to de novo review by the district court. Efficiency thus might dictate a single proceeding in the district court. For core matters, the bankruptcy court could issue appropriate orders and judgments where factual findings would be subject to a more deferential standard of review, and efficiency might dictate that a bankruptcy court decide the case because of its greater familiarity with the facts and issues. Id. at 1100-02. Similarly, the Orion court held that the Constitution prohibits bankruptcy courts from holding jury trials in non-core proceedings, and therefore if there is a jury demand in a non-core proceeding, the district court might decide to withdraw the reference. Id.

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518 B.R. 259, 60 Bankr. Ct. Dec. (CRR) 33, 2014 U.S. Dist. LEXIS 145824, 2014 WL 5068339, Counsel Stack Legal Research, https://law.counselstack.com/opinion/rescap-liquidating-trust-v-phh-mortgage-corp-nysd-2014.