Lehman Brothers Holdings Inc. v. 1st Advantage Mortgage, L.L.C. et al

FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re
LEHMAN BROTHERS HOLDINGS INC., et al.,
Debtors.
Chapter 11
Case No. 08-13555 (SCC)
LEHMAN BROTHERS HOLDINGS INC.,
Plaintiff,
- against -
1ST ADVANTAGE MORTGAGE, LLC, et al.,
Defendants.
Adversary Proceeding
No. 16-01019 (SCC)
LEHMAN BROTHERS HOLDINGS INC.,
Plaintiff,
- against -
UNIVERSAL AMERICAN MORTGAGE
COMPANY, LLC,
Defendant.
Adversary Proceeding
No. 16-01297 (SCC)
LEHMAN BROTHERS HOLDINGS INC.,
Plaintiff,
- against -
EAGLE MORTGAGE HOLDINGS, LLC, as
successor by merger to EAGLE HOME
MORTGAGE, INC.; and UNIVERSAL
AMERICAN MORTGAGE COMPANY, LLC,
Defendants.
Adversary Proceeding
No. 16-01383 (SCC)
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MEMORANDUM DECISION AND ORDER DENYING UNIVERSAL AMERICAN
MORTGAGE COMPANY, LLC’S AND EAGLE MORTGAGE HOLDINGS, LLC’S
JOINT SUPPLEMENTAL MOTION TO DISMISS ON UNIQUE ISSUES
A P P E A R A N C E S:
WOLLMUTH MAHER & DEUTSCH LLP
500 Fifth Avenue
New York, NY 10110
By: 	William A. Maher, Esq.
Paul R. DeFilippo, Esq.
Adam M. Bialek, Esq.
Mara R. Lieber, Esq.
-and-
FOX ROTHSCHILD LLP
1225 17th Street
Suite 2200
Denver, CO 80202
By: 	Michael A. Rollin, Esq.
Maritza Dominguez Braswell, Esq.
Counsel for Lehman Brothers Holdings Inc.
BILZIN SUMBERG BAENA PRICE & AXELROD LLP
1450 Brickell Avenue, Ste. 2300
Miami, FL 33131
By: 	Philip R. Stein, Esq.
James J. Ward, Esq.
Counsel for Universal American Mortgage Company, LLC and
Eagle Mortgage Holdings, LLC
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SHELLEY C. CHAPMAN
UNITED STATES BANKRUPTCY JUDGE
Before the Court is the Joint Supplemental Motion to Dismiss on Unique Issues filed by
Universal American Mortgage Company, LLC (“UAMC”) and Eagle Mortgage Holdings, LLC
(“Eagle” and, together with UAMC, the “Defendants”), dated June 15, 2017 [Dkt. No. 453] 1 (the
“Motion”). On August 29, 2017, Lehman Brothers Holdings Inc. (“LBHI” or the “Plan
Administrator”) filed its opposition to the Motion [Dkt. No. 507] (the “Opposition”), together
with the Declaration of Adam M. Bialek [Dkt. No. 507-1] (the “Bialek Decl.”). On September
28, 2017, the Defendants filed a reply to the Opposition [Dkt. No. 517] (the “Reply”).
BACKGROUND
The Court assumes familiarity with the general background and history of the LBHI
chapter 11 cases; this Decision will provide limited background facts pertinent to the Motion.
A. 	LBHI’s Loan Business
Prior to its bankruptcy, LBHI, directly or through its affiliates, including Lehman
Brothers Bank, FSB (“LBB”), engaged in the purchase and sale of mortgage loans. LBHI
arranged directly or through affiliates such as LBB to purchase mortgage loans from loan
originators and other third parties (the “Sellers”) including the Defendants; it then packaged such
loans for securitization or sale to other third parties. In transactions involving UAMC, UAMC
sold mortgage loans to LBB pursuant a Loan Purchase Agreement dated September 20, 2005 (as
amended by an Addendum dated October 1, 2006, the “UAMC LPA”) pursuant to which, among
other things, UAMC contractually agreed to indemnify LBB and hold it harmless from liabilities
1 	The adversary proceedings filed against the Defendants (and against certain other parties) have been
administratively coordinated pursuant to (i) the Case Management Order, dated November 1, 2016 [Dkt. No. 305]
(the “CMO”) and (ii) the Order to Administratively Coordinate Adversary Proceeding Dockets Under the Case
Management Order and Pursuant to U.S.C. § 105, dated March 6, 2017 [Dkt. No. 398]. Docket numbers used herein
refer to documents filed in Adversary Proceeding No. 16-01019 unless otherwise indicated.
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or losses it might incur (including liabilities to third parties) as a result of breaches of the
representations and warranties in the UAMC LPA.2 In transactions involving Eagle, Eagle (or its
predecessor, Eagle Home Mortgage, Inc.) sold mortgage loans to LBB pursuant to a Loan
Purchase Agreement dated October 21, 2004 (the “Eagle LPA” and, together with the UAMC
LPA, the “Agreements”) pursuant to which, among other things, Eagle contractually agreed to
indemnify LBB and hold it harmless from liabilities or losses it might incur (including liabilities
to third parties) as a result of breaches of the representations and warranties in the Eagle LPA.3
In conjunction with the sale by LBB to LBHI of the loans at issue, the Complaints assert that
LBB subsequently assigned to LBHI all of its rights and remedies under the Agreements
pertaining to such loans.4
Each of the Agreements specifically incorporates the terms and conditions of the Seller’s
Guide of loan administrator, Aurora Loan Services LLC (the “Seller’s Guide”).5 Under the
Seller’s Guide, the seller makes certain representations, warranties, and covenants to the
purchaser of mortgage loans about, among other things, the quality, characteristics, and
underwriting of each mortgage loan; the property securing the mortgage loans; and the
borrowers.6 In the event the seller breaches a representation, warranty, or covenant thereunder,
the Seller’s Guide delineates various forms of remedies.
Specifically, section 710 of the Seller’s Guide, entitled “Repurchase Obligation”
provides, in relevant part, that
2 	See Ex. J to Bialek Decl. ¶¶ 13, 27 (Second Amended Adversary Complaint, Lehman Brothers Holdings
Inc. v. Universal Am. Mortg. Co., LLC, Adv. Pro. No. 16-01297 [Dkt. No. 1] (the “UAMC Complaint”)).
3 	See Ex. K to Bialek Decl. ¶¶ 15, 29 (Second Amended Adversary Complaint, Lehman Brothers Holdings
Inc. v. Eagle Mortgage Holdings, LLC, Adv. Pro. No. 16-01383 [Dkt. No. 1] (the “Eagle Complaint” and, together
with the UAMC Complaint, the “Complaints”)).
4 	See UAMC Complaint ¶ 19; Eagle Complaint ¶ 21.
5 	See UAMC Complaint ¶ 14; Eagle Complaint ¶ 16. A representative copy of Section 7 of the Seller’s
Guide is attached as Ex. L to the Bialek Decl.
6 	See UAMC Complaint ¶ 22; Eagle Complaint ¶ 24.
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In the event of a breach of any of the representations, warranties or covenants
contained in Section 700 through 710 herein . . . and unless Purchaser
determines that such breach has been cured . . . Seller shall, at Purchaser’s
option, repurchase the related Mortgage Loan . . . at the Repurchase Price.
Ex. L to Bialek Decl. (Seller’s Guide) § 710. Section 711 of the Seller’s Guide, entitled
“Indemnification and Third Party Claims,” provides, in relevant part, that
In addition to any repurchase and cure obligations of Seller, and any and all
other remedies available to Purchaser under this Seller’s Guide and the Loan
Purchase 	Agreement, 	Seller 	shall 	indemnify 	Purchaser 	and 	Purchaser’s
designee (including, without limitation, any subsequent holder of any Note)
from and hold them harmless against all claims, losses, damages, penalties,
fines, claims, forfeitures, lawsuits, court costs, reasonable attorney’s fees,
judgments and any other costs, fees and expenses that the Purchaser may sustain
in any way related to or resulting from any act or failure to act or any breach of
any warranty, obligation, representation or covenant contained in or made
pursuant to this Seller’s Guide or the Loan Purchase Agreement by any agent,
employee, representative or officer of Seller or Seller’s correspondent.
Ex. L to Bialek Decl. (Seller’s Guide) § 711.
B. 	The Bankruptcy Proceedings
On September 15, 2008, LBHI and certain of its subsidiaries and affiliates (collectively,
the “Debtors”) filed voluntary chapter 11 cases in this Court.
On December 6, 2011, this Court confirmed the Modified Third Amended Joint Chapter
11 Plan of LBHI and Its Affiliated Debtors (the “Plan”). See Order Confirming Plan [Case No.
08-13555, Dkt. No. 23023] (the “Confirmation Order”).7
C. 	Prior Actions
In March 2011, LBHI filed suit against UAMC in the United States District Court for the
Southern District of Florida (Case No. 11-CV-20859) (the “Florida Action”), alleging breaches
of representations and warranties regarding eight mortgage loans that UAMC sold to LBB
7 	The Plan is annexed as Exhibit A to the Confirmation Order.
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pursuant to the UAMC LPA. 8 On January 9, 2013, the United States District Court for the
Southern District of Florida dismissed without prejudice seven of the eight counts in the
complaint initiating the Florida Action, finding that such counts lacked commonality of factual
circumstances, and granted LBHI the right to re-file each of such counts as a separate
complaint.9
Immediately following dismissal of the Florida Action, LBHI filed seven actions in the
United States District Court for the District of Colorado (the “Colorado District Court”), each
relating to one loan at issue.10 In five of the seven actions (collectively, the “Colorado Actions”),
the Colorado District Court granted summary judgment in favor of UAMC on the basis that
LBHI’s breach of contract claims were barred by the statute of limitations.11 See Lehman Bros.
Holdings Inc. v. Universal Am. Mortg. Co., LLC, 12 F. Supp. 3d 1355 (D. Colo. 2014); Lehman
Bros. Holdings Inc. v. Universal Am. Mortg. Co., LLC, No. 13-CV-00087, 2014 WL 1715365
(D. Colo. April 30, 2014); Lehman Bros. Holdings Inc. v. Universal Am. Mortg. Co., LLC, No.
13-CV-00088, 2014 WL 1715225 (D. Colo. April 30, 2014); Lehman Bros. Holdings Inc. v.
Universal Am. Mortg. Co., LLC, No. 13-CV-00093, 2014 WL 1715204 (D. Colo. April 30,
2014); and Lehman Bros. Holdings Inc. v. Universal Am. Mortg. Co., LLC, No. 13-CV-00092,
2014 WL 4269118 (D. Colo. August 28, 2014). LBHI appealed the five summary judgment
decisions to the United States Court of Appeals for the Tenth Circuit (the “Tenth Circuit”). In a
consolidated appeal, the Tenth Circuit affirmed the five summary judgment decisions, finding
that LBHI’s breach of contract claims accrued in 2006 and 2007 at the time LBHI purchased the
8 	See Bialek Decl. ¶ 2.
9 	See Ex. A to Bialek Decl. at 1-2 (Order Severing Claims and Requiring Supplemental Briefing in Florida
Action).
10 	See Bialek Decl. ¶ 5. The seven actions filed in the Colorado District Court were assigned Case Nos. 13-
CV-00087 through 13-CV-00093.
11 	See Bialek Decl. ¶ 7.
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loans at issue and, therefore, the claims asserted in the Colorado Actions filed by LBI in 2011
and 2012 were time-barred by the three-year statute of limitations for breach of contract under
Delaware law. See Lehman Bros. Holdings Inc. v. Universal Am. Mortg. Co., LLC, 660 F. App’x
554, 556 (10th Cir. 2016) (hereinafter, “Universal American”).12
D. 	The GSEs
The Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan
Mortgage Corporation (“Freddie Mac,” and, together with Fannie Mae, the “GSEs”) were two
subsequent purchasers of mortgage loans from LBHI. In September 2009, both GSEs filed
proofs of claim against LBHI (collectively, the “GSE Claims”), asserting breaches of
representations, warranties, or covenants in numerous sale agreements for loans they had
acquired from LBHI. The GSE Claims asserted claims for, among other things, “alleged
indemnity/reimbursement obligations” and “indemnity claims” arising from the sale of mortgage
loans to the GSEs, including mortgage loans originated by and purchased from the Defendants
and ultimately sold to the GSEs.13
In its review of the GSE Claims, LBHI determined that certain loans, including those
brokered or sold by the Defendants, contained various defects that violated the representations,
warranties, and covenants under the Agreements. LBHI has alleged that the representations,
warranties, and covenants in the sale agreements between the GSEs and LBHI were co-extensive
12 	The consolidated opinion in Universal American also addressed the appeal of an order granting a motion
filed by Standard Pacific Mortgage, Inc. to dismiss the claims of Aurora Commercial Corp. See Aurora Commercial
Corp. v. Standard Pac. Mortg., Inc., No. 12-CV-3138, 2014 WL 1056383 (D. Colo. Mar. 19, 2014).
13 	See Settlement Agreement, dated January 22, 2014, by and among LBHI, et al., and Fannie Mae (the
“Fannie Settlement”) §§ C, D [Case No. 08-13555, Dkt. No. 42153]; Settlement and Assignment Agreement, dated
February 12, 2014, by and among LBHI, et al., and Freddie Mac (the “Freddie Settlement”) §§ C, E [Case No. 08-
13555, Dkt. No. 42754].
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with those in the Agreements between LBB and the Defendants.14 Thus, Lehman asserts that
Defendants’ breaches, acts, and omissions caused LBHI to incur liability to the GSEs.
In January 2014, LBHI settled its disputes with the GSEs regarding the allowance of the
GSE Claims (the “GSE Settlements”). The Court approved the GSE Settlements by Orders
dated January 31, 2014 and February 19, 2014 (the “GSE Settlement Orders”) [Case No. 08-
13555, Dkt. Nos. 42420, 42918]. Pursuant to the Fannie Settlement, Fannie Mae received an
allowed claim for $2.15 billion in LBHI Class 7 under the Plan, and, pursuant to the Freddie
Settlement, Freddie Mac received a one-time cash payment of $767 million from LBHI, each in
settlement of all claims and disputes between the parties.15
E. 	The Adversary Proceedings
Subsequent to entering into the GSE Settlements, the Plan Administrator identified over
11,000 loans and over 3,000 potential counterparties against which LBHI allegedly held third-
party contractual claims for indemnification and/or reimbursement by virtue of the GSE
Settlements.16 To manage this volume of indemnification claims, the Court authorized the Plan
Administrator to implement a pre-litigation mediation protocol with the Sellers from which it
sought indemnification. See Alternative Dispute Resolution Procedures Order for
Indemnification Claims of The Debtors Against Mortgage Loan Sellers, dated June 24, 2014
[Case No. 08-13555, Dkt. No. 45277].
14 	See UAMC Complaint ¶¶ 2, 37; Eagle Complaint ¶¶ 2, 39.
15 	See Fannie Settlement §§ 2.1, 3.1, 5; Freddie Settlement §§ 2.1-2.3.
16 	The settlement agreements with the GSEs obligated the GSEs to provide the Plan Administrator with
certain documents and to otherwise assist the Plan Administrator in bringing indemnification claims against the
Sellers to indemnify LBHI for its liability to the GSEs. See Fannie Settlement §§ 3.1-3.6 (provisions requiring
Fannie Mae to assist the Plan Administrator in pursuing “Rep and Warranty Default” claims); Freddie Settlement §§
4.1-4.6 (similar provisions to assist the Plan Administrator in pursuing claims related to “Liquidated Rep and
Warranty Default Loans”).
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To further facilitate its pursuit of recoveries from those Sellers with whom mediation was
unsuccessful, the Plan Administrator initiated adversary proceedings in this Court, including
those at issue here, against more than one hundred Sellers (including the Defendants) in tandem
with six previously-filed adversary actions (collectively, the “Adversary Proceedings”).
Pursuant to the CMO, the Adversary Proceedings have a central docket for court filings (Adv.
Pro. No. 16-01019) and have been coordinated for administrative purposes, including scheduling
motions and discovery procedures.
On December 22, 2016, LBHI filed the UAMC Complaint, initiating Adversary
Proceeding No. 16-01297 against UAMC; on December 30, 2016, LBHI filed the Eagle
Complaint, initiating Adversary Proceeding No. 16-01383 against Eagle and UAMC. 17 By the
Complaints, LBHI claims that each of the Defendants breached its obligations under the
Agreements by selling or submitting defective mortgage loans into LBHI’s loan sale and
securitization channels, and, thus, LBHI has a third-party indemnification claim against each
Defendant for LBHI’s liability to the GSEs (together, the “Indemnification Claims”).
Specifically, the Complaints allege that it was Defendants’ breaches of the representations,
warranties, and/or covenants under the Agreements that caused LBHI to have to compensate the
GSEs pursuant to agreements between LBHI and the GSEs that contained representations,
warranties, and/or covenants co-extensive with those contained in the Agreements.18
The CMO provides a time frame for (i) the filing of so-called threshold motions such as
motions under Federal Rule of Civil Procedure 12(b) based on venue, jurisdiction, and/or failure
17 	LBHI asserts that UAMC expressly and/or impliedly assumed Eagle and its predecessor’s alleged
obligations and their alleged liability to LBHI. See Eagle Complaint ¶ 3.
18 	See UAMC Complaint ¶¶ 2, 37; Eagle Complaint ¶¶ 2, 39.
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to state a claim and (ii) objections to such motions. 19 On March 31, 2017, certain defendants in
the Adversary Proceedings (including the Defendants) filed an omnibus motion to dismiss the
complaints filed against such defendants pursuant to (i) Fed. R. Civ. P. 12(b)(1) for lack of
subject matter jurisdiction and (ii) Fed. R. Civ. P. 12(b)(3) for improper venue [Dkt. No. 413]
(the “Motion to Dismiss”). By Memorandum Decision and Order, dated August 13, 2018 [Dkt.
No. 606], this Court denied the Motion to Dismiss, finding that this Court has subject matter
jurisdiction over each of the Adversary Proceedings and that venue in this Court is proper.
The CMO also provides a time frame for the filing of so-called threshold motions to
address unique issues of individual defendants.20 As permitted by the CMO, Defendants filed
the instant Motion seeking dismissal of the Complaints pursuant to Rule 12(b)(6) of the Federal
Rules of Civil Procedure (“Rule 12(b)(6)”), made applicable by Rule 7012(b) of the Federal
Rules of Bankruptcy Procedure, for failure to state a claim upon which relief can be granted.
The Court heard oral argument on the Motion on June 12, 2018.
By the Motion, the Defendants argue that the Complaints should be dismissed because
the rulings in the Colorado Actions and in Universal American have preclusive effect as to
LBHI’s claims against the Defendants; as such, they assert that the allegations in the Complaints
are barred by claim preclusion and by issue preclusion. LBHI vehemently disagrees. The
Court’s ruling follows.
19 	See CMO ¶¶ 8-9 (“During Phase I, as set forth below, Defendants may file motions to dismiss pursuant to
Fed. R. Civ. P. 12(b) and other threshold motions as set forth more fully below (the “Phase I Motions”). No other
motions shall be filed during Phase I absent good cause shown. Within sixty (60) days after the commencement of
Phase I, the Defendants shall file a single consolidated motion to dismiss pursuant to Fed. R. Civ. Pro. 12(b)(1) (lack
of subject matter jurisdiction), 12(b)(3) (improper venue), 12(b)(6) (failure to state a claim upon which relief can be
granted), 12 (b)(7) (failure to join a party under Rule 19), 12(e) (for a more definite statement), and 12(f) (to strike),
addressing issues common to all Defendants . . . .”).
20 	See CMO ¶ 15 (“Within fifteen (15) days after the commencement of Phase I, if any Defendant intends to
file any threshold motion, including motions under Fed. R. Civ. P. 12(b)(2) (lack of personal jurisdiction); 12(b)(4)
(improper process); 12(b)(5) (insufficient service of process): and 28 U.S.C. § 1404 (change of venue), which
arguably address issues unique to that Defendant (the “Individual Motions”), it shall request a pre-motion
conference.”).
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DISCUSSION
A. Applicable Law
Rule 12(b)(6) permits a bankruptcy court to dismiss an adversary proceeding if a
plaintiff’s complaint fails to state a claim upon which relief may be granted. See Fed. R. Civ. P.
12(b)(6). In reviewing a motion to dismiss brought under Rule 12(b)(6), a court must accept the
material factual allegations in the complaint as true and draw all reasonable inferences in favor
of the plaintiff. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 555-56 (2007); E.E.O.C. v. Staten Island Sav. Bank, 207 F.3d 144, 148 (2d Cir. 2000).
B. Claim Preclusion, or Res Judicata21
1. 	Applicable Law
In connection with a motion to dismiss under Rule 12(b)(6), a defendant may invoke an
affirmative defense of claim preclusion when it is clear from the complaint and the matters of
which a court may take judicial notice that a prior court judgment precludes the plaintiff’s claims
as a matter of law. Pricaspian Dev. Corp. v. Total S.A., No. 08-CV-9724, 2009 WL 4163513, at
*4 (S.D.N.Y. Nov. 25, 2009), aff’d, 397 F. App’x 673 (2d Cir. 2010) (citing Candelaria v.
Erickson, No. 01-CV-8594, 2007 WL 1793443, at *2 (S.D.N.Y. June 18, 2007)). Under the
doctrine of claim preclusion, a final judgment forecloses “successive litigation of the very same
claim, whether or not relitigation of the claim raises the same issues as the earlier suit.” Taylor
v. Sturgell, 553 U.S. 880, 892 (2008) (citing New Hampshire v. Maine, 532 U.S. 742, 748
(2001)). Federal common law governs a court’s application of claim preclusion to an earlier
21 	Although the parties interchangeably use (i) the term “res judicata” to refer to claim preclusion and (ii) the
term “collateral estoppel” to refer to issue preclusion, as is the practice of certain courts, other courts, including the
United States Supreme Court, have employed the term “res judicata” as an overarching label for both claim
preclusion and issue preclusion. See Taylor v. Sturgell, 553 U.S. 880, 892 (2008) (noting that claim preclusion and
issue preclusion “are collectively referred to as ‘res judicata’”). For the sake of clarity, this Court will use the terms
“claim preclusion” and “issue preclusion” rather than the terms “res judicata” and “collateral estoppel.”
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federal court judgment and requires the court to apply “the law that would be applied by state
courts in the state in which the [original rendering court] sits.” See Pricaspian Dev. Corp. v.
Total S.A., 2009 WL 4163513, at *4 (citing Semtek Int’l. Inc. v. Lockheed Martin Corp., 531
U.S. 497, 507-08 (2001)). Accordingly, since the United States District Court for the District of
Colorado rendered the decisions in the Colorado Actions, the parties do not dispute that
Colorado law applies here. Under Colorado law, the claim preclusion doctrine applies when:
(1) the judgment in the prior proceeding was final; (2) the prior and current
proceedings involved identical subject matter; (3) the prior and current proceedings
involved identical claims for relief; and (4) the parties to the proceedings were
identical or in privity with one another.
Meridian Service Metropolitan District v. Ground Water Commission (In the Matter of Water
Rights), 361 P.3d 392, 398 (Colo. 2015) (citing Gallegos v. Colorado Ground Water Comm’n,
147 P.3d 20, 32 (Colo. 2006)). Claim preclusion bars not only issues actually decided, but also
any issues that could have been, but were not, raised in the first proceeding. See Argus Real
Estate, Inc. v. E-470 Pub. Highway Auth., 109 P.3d 604, 608 (Colo. 2005).
Assuming all factors in the claim preclusion test are satisfied, the preclusive effect is not
altered by the fact that a court may later determine that a prior judgment may have been wrongly
decided or may have rested on a legal principal subsequently overruled in another case. See
Federated Dep’t Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981) (collecting cases). Indeed, “an
‘erroneous conclusion’ reached by the court in the first suit does not deprive the defendants in
the second action ‘of their right to rely upon the plea of [claim preclusion].’” Id. (citing
Baltimore S.S. Co. v. Phillips, 274 U.S. 316, 325 (1927)).
Under Colorado law, a defendant bears the burden of setting forth facts sufficient to
satisfy the elements of claim preclusion or issue preclusion. Edmond v. Clements, No. 11-CV-
00248, 2012 WL 2523077, at *11 (D. Colo. Jan. 19, 2012).
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2. 	Analysis
By the Motion, Defendants assert that the Complaints should be dismissed on the basis of
claim preclusion because (i) LBHI is attempting to relitigate the same claims that were already
dismissed in the Colorado Actions, which decisions were affirmed by the Tenth Circuit, and (ii)
LBHI is precluded from making claims that it could have asserted in the Colorado Actions.22
Defendants contend that the first, second, and fourth elements of the claim preclusion
doctrine under Colorado law are easily satisfied because (i) the summary judgment decisions in
the Colorado Actions were final and have been affirmed by the Tenth Circuit; (ii) LBHI is suing
the same party, UAMC, under the same contract, the UAMC LPA, in connection with the same
transactions, the sale of mortgage loans sold from UAMC to LBB, which loans were
subsequently sold to LBHI; and (iii) the Colorado Actions involved the same parties – UAMC
and LBHI.23
Additionally, Defendants assert that the third element of the claim preclusion doctrine –
that the claims for relief in the two actions must be identical – is satisfied because the claims for
relief in the Colorado Actions and those in these Adversary Proceedings are all claims arising
under the same agreements – the UAMC LPA and the Seller’s Guide. They point to the
“transactional approach” applied by Colorado courts, whereby a contract is generally considered
to denote a single transaction for the purposes of claim preclusion and, therefore, claims for
breaches of such contract must ordinarily be brought in the same action.24 Under Colorado law,
argue the Defendants, even those claims that arise from severable parts of a divisible contract are
22 	See Motion at 1.
23 	See Motion at 6.
24 	See Motion at 7 (citing Petromanagement Corp. v. Acme-Thomas Joint Venture, 835 F.2d 1329, 1335-36
(10th Cir. 1988); see also Loveland Essential Group, LLC v. Grommon Farms, Inc., 318 P.3d 6, 10 (Colo. App.
2012) (“Generally, a contract is considered to denote a single transaction for the purpose of claim preclusion, and
therefore claims for different breaches of a contract ordinarily must be brought in the same action.”).
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considered to be part of the same transaction for purposes of claim preclusion, and “claims are
tied by the same injury where they concern all or any part of the transaction or series of
connected transactions, out of which the [original] action arose.”25 Accordingly, the Defendants
submit that, even if the Colorado Actions and these Adversary Proceedings assert claims for
breach on account of different loans, because the allegations in all of the actions arise under the
same agreements, the judgments entered in the Colorado Actions (and affirmed by the Tenth
Circuit) extinguished all claims held by LBHI with respect to such agreements.26
Alternatively, Defendants contend that, even if the Court is persuaded that the claims
LBHI asserted in the Colorado Actions are different from those now asserted in these Adversary
Proceedings, because the claims in the Adversary Proceedings could have been brought in the
Colorado Actions, they are now barred by claim preclusion. Defendants’ position is that
Colorado’s transactional approach would deem the claims “identical” for purposes of claim
preclusion because they are all tied to alleged injuries under the UAMC LPA. 27 In other words,
even if LBHI did not assert third-party indemnification claims in the Colorado Actions, claim
preclusion nonetheless applies because LBHI could have asserted in the Colorado Actions such
indemnification claims pursuant to section 711 of the Seller’s Guide. Defendants argue that
LBHI’s breach of contract claims in the Colorado Actions and its indemnification claims in these
Adversary Proceedings arise from the same series of connected transactions, and claims based on
the same transaction or series of connected transactions may not be split.28
25 	See Motion at 6-7 (citing Meeper, LLC v. Powers, No. 12-CV-01732-WYD-KMT, 2016 WL 369558, at *4
(D. Colo. Feb. 1, 2016) (citing Loveland Essential Group, LLC v. Grommon Farms, Inc., 318 P.3d at 10)).
26 	See Motion at 6-7.
27 	See Motion at 7.
28 	See Motion at 7-8.
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By the Opposition, LBHI argues, persuasively, that claim preclusion does not apply
because the third factor of the claim preclusion test – that the claims in the prior action and the
instant action are identical – has not been satisfied. LBHI asserts that (i) the claims raised in the
Colorado Actions involved entirely different mortgage loans, contracts, and loan originators than
those asserted in Adversary Proceeding No. 16-01383, and (ii) the claims asserted in Adversary
Proceeding No. 16-01297 are based on entirely different mortgage loans.29 Accordingly,
because each claim of breach arises from a unique set of facts, circumstances, defects, and
damages, LBHI contends that (i) the claims in the Prior Actions and in these Adversary
Proceedings cannot be deemed to arise out of a single transaction, even if certain of the claims
may arise from the same contract (as in the case of the UAMC Complaint), and (ii) as a result,
the claims in these Adversary Proceedings need not have been brought in the Colorado
Actions.30 Additionally, and dispositively, LBHI argues that claim preclusion cannot apply here
because LBHI’s third-party indemnification claims against the Defendants did not accrue until
LBHI entered into the GSE Settlements in 2014, as this Court has previously ruled;31 as such,
LBHI could not have raised these claims in the Colorado Actions, which were commenced in
January 2013.32
29 	See Opposition at 1.
30 	See Opposition at 8-9 (citing to CitiMortgage, Inc. v. Chicago Bancorp. Inc., 2015 WL 631365, at *5 (E.D.
Mo. 2015) (rejecting claim splitting defense as to claims regarding mortgage loans sold under same contract as loans
in the prior action); ResCap Liquidating Trust v. U.S. Bank, N.A., 2017 WL 2437242, at *5 (D. Minn. June 5, 2017)
(res judicata inapplicable where “the two suits involve[d] different sets of loans and thus different operative facts”);
ResCap Liquidating Trust v. PNC Bank, N.A., 2017 WL 3129748, at *7 (D. Minn. July 21, 2017) (same); Lehman
Bros. Holdings Inc. v. Gateway Funding Diversified Mortg. Servs., L.P., 942 F. Supp. 2d 516, 532 (E.D. Pa. 2013)
(res judicata inapplicable because prior lawsuit involved different loans and a different legal theory and thus “the
documents necessary at trial” and “material facts” were different)).
31 	In Lehman Bros. Holdings v. Hometrust Mortg. Co. (In re Lehman Bros. Holdings), 530 B.R. 601 (Bankr.
S.D.N.Y. 2015), this Court held that LBHI’s claim for indemnification under section 711 of the Seller’s Guide did
not accrue until its liability to a third party was fixed or payment was made – as is the case here, on the date of the
GSE Settlements.
32 	See Opposition at 10.
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The Court finds that the claims asserted by LBHI in Adversary Proceeding No. 16-01297
and Adversary Proceeding No. 16-01383 are not barred by claim preclusion. While the
Defendants correctly cite the proposition that, under Colorado law, a contract generally is
considered to denote a single transaction for the purpose of claim preclusion, such that claims for
different breaches of a contract ordinarily must be brought in the same action, see
Petromanagement Corp. v. Acme-Thomas Joint Venture, 835 F.2d at 1335-36, the Tenth Circuit
has explicitly noted that this is only the case “so long as the breaches antedated the original
action.” Id. at 1336. The Court of Appeals of Colorado has also concluded that “[c]laim
preclusion does not bar a later action on claims [under the same contract] which arise after the
original action is filed, but before judgment in the original action.” See Loveland Essential
Group, LLC v. Grommon Farms, Inc., 318 P.3d at 14.
Here, the Colorado Actions were commenced in 2013, prior to LBHI’s entry into, and the
Court’s approval of, the GSE Settlements in 2014. LBHI’s Indemnification Claims against each
Defendant did not accrue until its liability to the GSEs was fixed upon entry of the GSE
Settlement Orders in early 2014; accordingly, the Indemnification Claims did not arise in time
for LBHI to have pled them in the Colorado Actions. As such, they are not barred by claim
preclusion.
Moreover, even assuming, arguendo, that the claims asserted in the Adversary
Proceedings could have been raised in the Colorado Actions, the Court finds that, because the
claims in each of the actions arise from the sale of different loans, each with a unique set of facts,
circumstances, alleged defects, and asserted damages, such claims cannot be considered
“identical” for purposes of the claim preclusion inquiry, even if the claims arise under the same
contract. Each purchase of an individual loan by LBB from a Defendant cannot be considered as
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part of a single transaction merely because the parties agreed that each loan purchase and sale
would be governed by the same terms and conditions set forth in the Seller’s Guide. As LBHI
correctly asserts, multiple federal courts (including the United States District Court for the
Southern District of Florida, the venue for the Florida Action) have held that claims regarding
mortgage loans sold under the same contract need not or should not be brought in the same
action.33 So too here.
Finally, specifically with respect to Adversary Proceeding No. 16-01383, claim
preclusion also cannot apply because this Adversary Proceeding involves a different defendant
and a different contract than those involved in the Colorado Actions. Eagle, a defendant in
Adversary Proceeding No. 16-01383, was not a party to the Colorado Actions, and the
Defendants have not asserted that Eagle was in privity with UAMC when the Colorado Actions
were commenced. Further, the claims in the Colorado Actions related to loans sold by UAMC
under the UAMC LPA, whereas the claims in Adversary Proceeding 16-01383 relate to loans
sold by Eagle under the Eagle LPA. Accordingly, neither the requirement that the claims for
relief be identical nor the requirement that the parties to the proceedings be identical (or in
privity with one another) is satisfied with respect to the claims LBHI has asserted in Adversary
Proceeding No. 16-01383.
For all of the foregoing reasons, the Motion to dismiss the Complaints on the basis of
claim preclusion is denied.
33 	See Opposition at 8-9 (citing to CitiMortgage, Inc. v. Chicago Bancorp. Inc., 2015 WL 631365, at *5 (E.D.
Mo. 2015) (rejecting claim splitting defense as to claims regarding mortgage loans sold under same contract as loans
in the prior action); ResCap Liquidating Trust v. U.S. Bank, N.A., 2017 WL 2437242, at *5 (D. Minn. June 5, 2017)
(res judicata inapplicable where “the two suits involve[d] different sets of loans and thus different operative facts”);
ResCap Liquidating Trust v. PNC Bank, N.A., 2017 WL 3129748, at *7 (D. Minn. July 21, 2017) (same); Lehman
Bros. Holdings Inc. v. Gateway Funding Diversified Mortg. Servs., L.P., 942 F. Supp. 2d 516, 532 (E.D. Pa. 2013)
(res judicata inapplicable because prior lawsuit involved different loans and a different legal theory and thus “the
documents necessary at trial” and “material facts” were different)).
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C. Issue Preclusion, or Collateral Estoppel
1. 	Applicable Law
Under the doctrine of issue preclusion, a final judgment forecloses “successive litigation
of an issue of fact or law actually litigated and resolved in a valid court determination essential to
the prior judgment, even if the issue recurs in the context of a different claim.” Taylor v.
Sturgell, 553 U.S. at 892 (internal quotation marks omitted) (citing New Hampshire v. Maine,
532 U.S. 742, 748-49 (2001)). Like the doctrine of claim preclusion, federal common law
determines the preclusive effect of an earlier federal court judgment and incorporates the issue
preclusion rules applied in the state in which the original rendering court sits. Taylor v. Sturgell,
553 U.S. at 891 n.4.
Colorado law provides that issue preclusion bars relitigation of a factual or legal matter
that was previously litigated and decided in an earlier matter. Rantz v. Kaufman, 109 P.3d 132,
138 (Colo. 2005) (en banc) (internal quotations marks omitted) (citing Carpenter v. Young, 773
P.2d 561, 565 (Colo. 1989). Specifically, under Colorado law, a party is collaterally estopped
from relitigating an issue if
(1) [t]he issue precluded is identical to an issue actually litigated and necessarily
adjudicated in the prior proceeding; (2) [t]he party against whom estoppel [is]
sought was a party to or was in privity with a party to the prior proceeding; (3)
[t]here was a final judgment on the merits in the prior proceeding; [and] (4) [t]he
party against whom the doctrine is asserted had a full and fair opportunity to litigate
the issues in the prior proceeding.
Rantz v. Kaufman, 109 P.3d at 139 (citing Bebo Construction Co. v. Mattox & O'Brien, P.C., 990
P.2d 78, 84-85 (Colo. 1999)); see also S.O.V. v. People in Interest of M.C., 914 P.2d 355, 359
(Colo. 1996) (en banc). Issue preclusion is broader than claim preclusion in one sense since it
can preclude relitigation of an issue even where the claims for relief are different from those
asserted in the first action. Because issue preclusion only applies to issues actually litigated,
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however, it is narrower than claim preclusion, which also applies to claims which could have
been raised in a prior suit but were not. Rantz v. Kaufman, 109 P.3d at 138-39 (citing City and
County of Denver v. Block 173 Assocs., 814 P.2d 824, 831 (Colo. 1991)); Argus Real Estate, Inc.
v. E-470 Pub. Highway Auth., 109 P.3d at 608.
2. 	Analysis
The central dispute with respect to the applicability of issue preclusion here pertains to
whether the first prong of the test for issue preclusion has been satisfied. Stated differently, are
the issues in these Adversary Proceedings identical to issues “actually litigated and necessarily
adjudicated” in the Colorado Actions?34 The Defendants assert that LBHI’s claims in the
Complaints are barred by issue preclusion because Universal American affirmed the Colorado
District Court’s ruling that all of LBHI’s claims in the Colorado Actions (including claims for
indemnity) were untimely under the applicable statute of limitations.35 Specifically, the
Defendants maintain that the Tenth Circuit expressly extended its holding that LBHI’s “breach
of contract” claims were barred by the statute of limitations to include claims for indemnity by
LBHI. In support of such contention, the Defendants cite to Universal American, in which the
court stated that
we would regard Lehman Holdings’ claims as causes of action for breach
of contract even if Lehman Holdings had pleaded them as claims for
indemnity . . . . the causes of action accrued when Universal American . . .
sold the defective loans with the representations and warranties. . . . Thus,
all of the claims are presumptively time-barred under Delaware’s three-year
period of limitations.36
34 	See Rantz v. Kaufman, 109 P.3d at 139.
35 	See Motion at 9-10.
36 	See Motion at 10 (citing Universal American, 660 F. App’x at 568-69 (emphasis added and internal
quotations and citations omitted)); Reply at 5 (same).
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Accordingly, Defendants argue that LBHI is collaterally estopped from asserting that the
Indemnification Claims in these Adversary Proceedings are timely because, in affirming the
Colorado District Court’s summary judgment rulings, the Tenth Circuit held that LBHI’s breach
of contract and indemnity claims were barred by the statute of limitations.37
LBHI argues that this Court should reject the Defendants’ collateral estoppel argument
because the Defendants have failed to satisfy their burden to demonstrate that Universal
American should be given preclusive effect here. Specifically, LBHI asserts that the claims
adjudicated in the Colorado Actions and on appeal were claims for breach of contract under
section 710 of the Seller’s Guide38 and the Complaints filed in these Adversary Proceedings
assert claims for indemnification under section 711 of the Seller’s Guide – two entirely different
provisions of the same document and two different legal issues.39 Because in Universal
American the Tenth Circuit did not analyze, in dicta or otherwise, the issue of express
contractual indemnification claims against a third-party under section 711 – the issue in these
Adversary Proceedings – LBHI maintains that Universal American “does not control, or even
37 	Defendants also argue that the second, third, and fourth elements of the issue preclusion test – identical
parties, final judgment on the merits, and opposing party’s opportunity to fully and fairly litigate issues in the prior
proceeding – are satisfied because the parties in the Colorado Actions and in these Adversary Proceedings are
identical, the Tenth Circuit’s opinion in Universal American is final, and LBHI raised the same timeliness issues in
litigating the Colorado Actions. See Motion at 9. The Court declines to address these arguments because it finds
that the Defendants have failed to meet their burden to demonstrate that the first element of the issue preclusion
inquiry has been satisfied. Notwithstanding, the Court notes that, as discussed in Section B.2 supra, the parties in
the Colorado Actions and the parties in Adversary Proceeding No. 16-01383 are not identical, because Eagle, a
defendant in Adversary Proceeding No. 16-01383, was not a party to the Colorado Actions, and the Defendants have
not asserted that Eagle was in privity with UAMC when the Colorado Actions were commenced.
38 	Section 710 of the Seller’s Guide provided LBHI the right to require sellers to repurchase defective
mortgage loans sold directly to LBB, a right which accrued upon the breach of a representation or warranty that
materially and adversely affected the value of the mortgage loan. The remedy was the contractually defined
“Repurchase Price.” See Opposition at 2-3 (citing Ex. L to Bialek Decl. § 710).
39 	Section 711 of the Seller’s Guide gave LBHI an indemnification right triggered by “claims, losses,
damages, . . . judgments and any other costs, fees, and expenses . . . [that are] in any way related to or resulting from
any act or failure to act or any breach of any warranty, obligation, representation or covenant contained in or made
pursuant to this Seller’s Guide or the Loan Purchase Agreement. See Opposition at 3 (citing Ex. L to Bialek Decl.
§ 711).
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relate to” the indemnification claims at issue here.40 As such, LBHI submits that the issues
raised in the instant proceeding and in the prior proceedings are not identical, as required by the
first prong of the collateral estopped inquiry, and collateral estoppel does not apply.
The Court agrees. Under Colorado law, a litigant is precluded from rearguing an issue
only if such issue is identical to an issue actually litigated and necessarily adjudicated in the prior
proceeding. See Rantz v. Kaufman, 109 P.3d at 139; see also Bebo Const. Co. v. Mattox &
O'Brien, P.C., 990 P.2d at 85-86. An issue is deemed to be “actually litigated” where (i) one of
the parties, by appropriate pleading, asserts such issue through a claim or cause of action against
the other party and (ii) such issue has been submitted for determination and actually determined
by the adjudicatory body. Id. at 85. An issue is “necessarily adjudicated” when a determination
on such issue was necessary to a judgment. Id. at 86. In Universal American, the Tenth Circuit
observed that, in the Colorado Actions, LBHI had pled only breach of contract claims with
indemnity as a remedy for breach, as opposed to pleading indemnification claims as a distinct
cause of action, stating that
In its five amended complaints and motions for partial summary judgment, Lehman
Holdings referred to indemnification only as one of the ways that Universal
American breached the contract, stating that the breaches consisted of failure to
repurchase the loans “and/or fail[ure] to indemnify Lehman for its losses.”
Lehman Holdings never asserted indemnification as a cause of action distinct from
the cause of action for breach of contract. For example, in none of the five amended
complaints is there any mention of Freddie Mac, Fannie Mae, or any payment by
Lehman Holdings to a third party. Through the amended complaints and summary
judgment briefing, Lehman Holdings presented the claim in district court solely as
one for breach of contract, with indemnity as a remedy rather than a distinct cause
of action.
Universal American, 660 F. App’x at 567); see also iFreedom Direct Corp. v. Lehman Bros.
Holdings Inc., 2017 WL 2729079, at *2 (D. Utah June 23, 2017) (stating that, in Universal
40 	See Opposition at 4 (citing Universal American, 660 F. App’x at 568-69).
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American, “LBHI did not assert ‘indemnification as a cause of action distinct from the cause of
action for breach of contract,’ unlike its Indemnification Claims asserted in the Bankruptcy
Court”); In re RFC & RESCAP Liquidating Tr. Action, No. 13-CV-3351, 2018 WL 3911424, at
*63 (D. Minn. Aug. 15, 2018) (“In reaching its ruling, the court [in Universal American] relied
on New York precedent involving the implied right of indemnity. . . . Here, however, Plaintiffs
expressly assert a stand-alone cause of action for contractual indemnity that does not allege a
refusal to indemnify or breach of the indemnification provision.”). Because the Tenth Circuit
found that LBHI had not asserted a cause of action for express contractual third-party
indemnification in the Colorado Actions, the Court concludes that the issue of whether or not the
Indemnification Claims are time-barred under the applicable statute of limitations was not
actually litigated and necessarily adjudicated in Universal American.
Moreover, in Lehman Bros. Holdings v. Hometrust Mortg. Co., 530 B.R. at 610-12, this
Court rejected the argument by another loan seller that the determination in certain of the
Colorado Actions that LBHI’s claims were barred by the statute of limitations barred LBHI from
asserting its Indemnification Claims in the Adversary Proceeding filed in this Court against such
loan seller.41 This Court held that the rulings of the Colorado District Court did not address a
claim for indemnification under section 711 of the Sellers’ Guide and that the Indemnification
Claims were not barred by the statute of limitations. After analyzing sections 710 and 711 of the
Seller’s Guide and canvassing every case in which the parties’ loan purchase agreement (or
documents closely akin to such agreement) had been at issue, this Court held that LBHI’s claim
for indemnification under section 711 of the Seller’s Guide did not accrue until the date of the
41 	The Court’s ruling in Lehman Bros. Holdings v. Hometrust Mortg. Co. was issued prior to the Tenth
Circuit’s decision in Universal American.
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Fannie Mae Settlement, when its liability to a third party was fixed or payment was made. 42 As
such, only at that time did the six-year statute of limitations begin to run. In denying the
defendants’ motion for leave to appeal, the District Court observed that “[t]here can be no
‘substantial doubt’ that [this Court’s statute of limitations] decisions were correct.” Hometrust
Mortg. Co. v. Lehman Bros. Holdings Inc., Nos. 15-CV-4060, 15-CV-4061, 2015 WL 5674899,
at * 3 (S.D.N.Y. Sept. 25, 2015) (citation omitted).
Notably, in Lehman Bros. Holdings v. Hometrust Mortg. Co., this Court observed that
none of the decisions in the Colorado Actions (two of which had been decided at the time)
mentions, let alone analyzes, section 711 of the Seller’s Guide or attempts to determine whether
it confers a right of action for indemnification separate from “indemnification” under section 710
of the Seller’s Guide for breaches of representations, warranties, and/or covenants. Lehman
Bros. Holdings v. Hometrust Mortg. Co., 530 B.R. at 610. Similarly, section 711 was not
discussed in Universal American, which decision barred as untimely LBHI’s claims for breach of
contract under section 710. The Indemnification Claims asserted by LBHI in the Complaints are
contractual indemnification claims under section 711 of the Seller’s Guide that did not accrue
until LBHI’s liability to the GSEs was fixed upon the approval of the GSE Settlements in 2014.
Causes of action for express contractual indemnification have not been actually litigated and
necessarily adjudicated in the prior proceedings pointed to by the Defendants – the Colorado
Actions and Universal American. Accordingly, the Court finds no basis for collateral estoppel to
apply here.
42 	This Court found that sections 710 and 711 of the Seller’s Guide must be read together to provide the
purchaser (i) rights under section 710, which rights include indemnification, and (ii) additional rights under section
711, of a different character than those given under section 710, including rights exercisable by third parties who
were not parties to the Agreement in the first instance. Lehman Bros. Holdings v. Hometrust Mortg. Co., 530 B.R.
at 609.
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For all of the foregoing reasons, the Motion to dismiss the Complaints on the basis of
issue preclusion is denied.
IT IS SO ORDERED.
Dated: October 31, 2018
New York, New York
/S/ Shelley C. Chapman
UNITED STATES BANKRUPTCY JUDGE
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