14-1414-cv
Wells Fargo Bank, N.A. v. JP Morgan Chase Bank, N.A.

                        UNITED STATES COURT OF APPEALS
                            FOR THE SECOND CIRCUIT

                                    SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY
OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

       At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York,
on the 16th day of March, two thousand sixteen.

Present:
           PETER W. HALL,
           DEBRA ANN LIVINGSTON,
           SUSAN L. CARNEY,
                       Circuit Judges.
____________________________________________________

WELLS FARGO BANK, NA, as Trustee for the registered holders of J.P. Morgan Chase
Commercial Mortgage Corp., Commercial Mortgage Pass-Through Certificates, Series 2002-
CIBC4, acting by and through its Special Servicer, LNR Partners, LLC,

                     Plaintiff-Appellant,

              v.                                                       No. 14-1414-cv

JPMORGAN CHASE BANK, N.A.,

                 Defendant-Appellee.
____________________________________________________

FOR APPELLANT:               GREGORY A. CROSS (Colleen M. Mallon, on the brief), Venable
                             LLP, Baltimore, MD.

FOR APPELLEE:         JOHN G. HUTCHINSON (Benjamin R. Nagin, Eamon P. Joyce,
                      Colin J. Garry, on the brief), Sidley Austin LLP, New York, NY.
____________________________________________________
        Appeal from a judgment of the United States District Court for the Southern District

of New York (Cedarbaum, J.).

        UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.

        Plaintiff-Appellant Wells Fargo Bank, N.A.1 (“Wells Fargo”) appeals from the district

court’s order dismissing its claims for breach of contract against Defendant-Appellee

JPMorgan Chase Bank, N.A. (“JPMorgan”) on statute of limitations grounds. The claims

arose from JPMorgan’s alleged breach of its contractual obligations, as memorialized in the

parties’ Mortgage Loan Purchase Agreement (“MLPA”), to repurchase a mortgage loan that

allegedly violated certain representations and warranties. We assume the parties’ familiarity

with the underlying facts and the procedural history of the case.

        On appeal, Wells Fargo contends that its claims were timely because: (1) the

“repurchase provision” of the MLPA created an ongoing obligation to repurchase or cure

that was breached each time JPMorgan failed to repurchase or cure an allegedly breaching

loan; and (2) under the “demand provision” of the MLPA, Wells Fargo was not entitled to

demand that JPMorgan repurchase or cure the defective loan until there was a material and

adverse effect on the value of the loan as a result of the breach. These arguments are

unavailing in light of a recent decision of the New York Court of Appeals, ACE Secs. Corp. v.

D.B. Structured Prods., Inc., 25 N.Y.3d 581 (2015), and a recent decision of this Court, Deutsche

Bank National Trust Co. v. Quicken Loans Inc., 810 F.3d 861 (2d Cir. 2015). We review de novo a

1 Wells Fargo Bank, N.A. in its individual capacity has moved to intervene in this case for the limited purpose
of clarifying that Plaintiff-Appellant’s legal positions are attributable to the Trust itself, acting by and through
its Special Servicer (LNR Partners, LLC), and are not attributable to Wells Fargo. (See Motion to Intervene,
ECF No. 72.) Although we deny that motion, Wells Fargo’s position is duly noted.

                                                         2
district court’s grant of a motion to dismiss, including its application of the pertinent statute

of limitations and its interpretation of contractual terms. Id. at 865. When sitting in diversity

jurisdiction and reviewing New York state law claims, we must apply “the law of New York

as interpreted by the New York Court of Appeals.” Id. (quoting Licci ex rel. Licci v. Lebanese

Canadian Bank, SAL, 739 F.3d 45, 48 (2d Cir. 2013) (per curiam)).

        Under New York law, the six-year limitations period on claims for breach of contract

generally runs from the time the contract was breached. N.Y. C.P.L.R. 203(a), 213(2); see also

Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399, 402 (1993). Where “a demand is

necessary to entitle a person to commence an action,” the cause of action accrues “when the

right to make the demand is complete . . . .” N.Y. C.P.L.R. 206(a). Accordingly, “[a] cause

of action for breach of contractual representations and warranties that guarantee certain facts

as of a certain date—but do not guarantee future performance—accrues on the date those

representations and warranties become effective.” Quicken Loans, 810 F.3d at 365 (citing

ACE, 25 N.Y.3d at 596). In this case, the allegedly breached representations and warranties

were made at the time the MLPA was executed in 2002. By the time Wells Fargo filed suit in

2012, more than six years had passed since the Defendant allegedly breached its relevant

performance obligations under the contract. Wells Fargo’s claims, therefore, were time-

barred.2


2Wells Fargo also argues that, even assuming, arguendo, that the demand provision is procedural and the
material and adverse effect provision is not an essential element of the breach, N.Y. C.P.L.R. 206(a) delays
accrual of the cause of action here, as the Trust’s “right to make . . . demand was not not ‘complete’ . . . until
JPMorgan’s breaches of Representations materially and adversely affected the value of the Loan . . . .”
Appellant’s Br. at 36 (quoting N.Y. C.P.L.R. 206(a)). ACE and Quicken Loans foreclose this understanding of
how Rule 206(a) operates. The intermediate court in ACE, affirmed by the New York of Appeals, clearly
held that the date of accrual was the date of breach of the Representations and Warranties, even as it
acknowledged explicitly that “the Trustee was not entitled to . . . demand . . . repurchase . . . until it

                                                        3
        The “material[] and adverse[]” effect language, J.A. 41, does not create an element of

an actionable breach. Rather, the language referring to material adverse effects is part of the

provision through which Wells Fargo might seek repurchase as one recourse for a breach of

representations and warranties made in the MLPA. Such a remedial mechanism is not an

element of breach and does not toll the statute of limitations under New York law. See

ACE, 25 N.Y.3d at 598 (holding that the failure to repurchase or cure under a substantially

similar MLPA is not a substantive condition precedent capable of delaying accrual of a

trust’s claims). Because the repurchase provision does not create “an independent obligation

but merely an alternative contractual remedy to damages, [and] the relevant ‘performance’ is

the truth or falsity” of the representations and warranties, the statute of limitations runs

from the time those representations and warranties were made. Quicken Loans, 810 F.3d at

867 (internal citation omitted).

        Wells Fargo’s argument that the district court erred by not accepting the Complaint’s

allegation that the value of the “Mortgage Loan, the related Mortgage Property or the

interests of any of the holders of the Certificates therein,” J.A. 41, was not materially and

adversely affected until 2009 is unavailing. As our analysis demonstrates, the material and

adverse effect requirement is a component of the remedy and not of the breach; thus, like

discovered or received notice of a breach and the cure period lapsed.” ACE Secs. Corp. v. DB Structured Prods.,
Inc., 977 N.Y.S.2d 229, 231 (N.Y. App. Div. 1st Dep’t 2013); see also ACE, 25 N.Y.3d 581. Similarly, in
Quicken Loans, demand could not be made until after notification or discovery and the required cure period,
but these procedural contours of the remedy provision did not, via 206(a), operate to delay accrual. 810 F.3d
at 864. The holdings of both cases thus make clear that, although preconditions to the ability to make a
procedural demand for a bargained-for alternative remedy might affect when “demand” for that remedy can,
as a procedural matter, be made (just as the material and adverse effect requirement allegedly does in this
case), they do not affect when the “right to make the demand is complete,” N.Y. C.P.L.R. 206(a) (emphasis
added): when the relevant wrong is completed and the legal right to some remedy (though potentially a right
limited, procedurally, by the bargained-for provisions of the contract) arises. In other words, 206(a) does not
provide an alternate way for the procedural conditions of an alternative remedy provision to delay the date of
accrual.

                                                       4
the cure period in Quicken Loans, it does not delay accrual. Nevertheless, we would also

note—without otherwise determining when a material and adverse effect was pled to exist in

this case or whether the proper interpretation of material adverse effects even contemplates

that such an effect can or does occur at a later time than the breach of the representations

and warranties themselves—that, although allegations as to the facts underlying such an

effect must indeed be taken as true at the motion to dismiss stage, the existence of a material

and adverse effect turns on a legal conclusion as to what this text means in the MLPA. The

district court had no obligation to accept a legal conclusion as true on a motion to dismiss.

       The repurchase provision of the MLPA does not delay accrual of the statute of

limitations, because it does not create a substantive condition precedent to suit. See Quicken

Loans, 810 F.3d at 866 (noting that New York courts “distinguish between substantive

demands and procedural demands” for statute of limitations purposes (quoting Cont’l Cas.

Co. v. Stronghold Ins. Co., 77 F.3d 16, 21 (2d Cir. 1996))). Rather, the contractual demand

condition to cure or repurchase merely prescribes the mechanism by which the purchaser

seeks a remedy for a preexisting wrong. See id. at 867 (stating with respect to similar

repurchase provision that “performance (or nonperformance) of the contract is not

contingent on [the party’s] demand; the [representations and warranties] were true or false—

either performed or not—at the moment they were made”).

       We have considered Appellant’s remaining arguments and conclude that they are

without merit. We therefore AFFIRM the judgment of the district court.

                                                    FOR THE COURT:
                                                    Catherine O’Hagan Wolfe, Clerk



                                               5
