With Greenwich Financial v. Countrywide having been remanded to New York state Supreme Court, Countrywide has now filed a Motion to Dismiss, arguing that Greenwich Financial’s Complaint is barred by the operative securitization agreements. As discussed in several prior posts, Greenwich brought this suit to force Countrywide to pay for the loans it has agreed to modify pursuant to its settlement with dozens of state Attorneys General. Countrywide’s full memorandum of points and authorities in support of its Motion to Dismiss may be found here.
Countrywide’s Motion asserts that the terms of the Pooling and Servicing Agreements (PSAs)between investors and Countrywide, including the “No-Action” provisions, expressly prevent Greenwich from suing to force Countrywide to repurchase the loans it modifies. Interestingly, while Countrywide cites the Housing and Economic Recovery Act and Helping Families Save Their Homes Act to show that such modifications are within “standard servicing practice,” Countrywide does not argue that Greenwich’s suit is barred by the Servicer Safe Harbor. Instead, Countrywide asserts that while it will brief such matters in future filings, “[b]ecause the immunity question requires consideration of additional documentation…Countrywide does not raise the immunity defense in this motion.” I’m curious what documentation Countrywide will have to review to brief this issue, as the Servicer Safe Harbor seems to have been designed specifically to relieve servicers such as Countrywide from liability based on contractual provisions like the ones in the PSAs.
As I discuss in an article that was recently published in the Daily Journal (an online version of which is available here), if Countrywide is successful when (not if) it eventually argues for dismissal based on the Servicer Safe Harbor, the decision could expose the Servicer Safe Harbor to a constitutional challenge pursuant to the Fifth Amendment’s Taking’s clause (see prior discussion here). If Greenwich Financial is thereby forced to bear losses that it expressly contracted against, it may constitute unconstitutional loss-shifting from one private party to another for a public purpose, in which case the government would be required to provide investors with just compensation.
Nevertheless, it will be interesting to see how Greenwich responds to the instant motion to dismissed based on the language of the PSAs. From my prior analysis of these contracts, it appeared that their language strongly favored holding Countrywide liable for the costs of such modifications.
Greenwich v. Countrywide had been stayed over the summer while the federal court to which Countrywide had removed the case deliberated over whether Greenwich’s case raised a federal question, or otherwise was subject to federal jurisdiction based on its securities class action claims. On August 14, Judge Richard Holwell issued an opinion remanding the case to state court. Judge Holwell found that there was no federal question jurisdiction because the issues of the Servicer Safe Harbor and other federal statutes relied upon by Countrywide would be asserted merely as defenses, and were not essential to Greenwich’s claims. The court further found that the case fell into one of the exceptions to mandatory federal jurisdiction under the Class Actions Fairness Act, and while the issues raised in the case were timely and novel, this was not enough to mandate federal jurisdiction. The full order is available here.
While Countrywide states that it intends to appeal Judge Holwell’s order of remand, it appears that Countrywide will move forward with its defenses on the merits in state court. Check back for further updates on this fascinating case.