Opinion
Civil No. 3:99-CV-2416-H
May 12, 2000.
MEMORANDUM OPINION AND ORDER
Before the Court is Defendant's Motion to Dismiss, or Alternatively, for More Statement and Brief in Support, filed February 14, 2000; and all responses and replies thereto. Upon review of the pleadings of the parties, the Court DENIES Defendant's motion.
I. BACKGROUND
Leader Federal (a predecessor to Plaintiff Union Planters) and Defendant EMC Mortgage entered into the Mortgage Loan Purchase Agreement ("Agreement") on March 5, 1996 whereby Defendant would sell certain residential mortgage loans to Leader Federal to service the loans. One of the loans, the so-called "Eisenberg Loan," was allegedly serviced improperly by EMC before its transfer to Leader Federal. The Eisenbergs sued Leader Federal, and Leader Federal was forced to defend and settle the lawsuit.
Plaintiff Union Planters (Leader Federal's successor) now sues EMC for breach of the Agreement. Plaintiff alleges breaches of Sections 19, 8(b) and 5 of the Agreement for failure to indemnify, failure to properly apply loan payments prior to transfer, failure to notify of breach of warranty, and breach of warranty. Plaintiff also sues for material misrepresentations and fraud. Defendant now moves to dismiss the Second Amended Complaint ("Complaint" or "the Complaint"), or alternatively, moves for a more definite statement.
II. FAILURE TO STATE A CLAIM: CONTRACT/WARRANTY CLAIMS
Defendant moves to dismiss Plaintiffs' claim for breach of contract/warranty (Complaint ¶¶ 32-41) for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6). Defendant argues that a provision in the Agreement expressly requires any claim for breach of a Section 5 warranty to be brought within one year. A. Rule 12(b)(6) Standard
The warranty limitation provision states:
"It is understood and agreed that the representations and warranties set forth in this Section 5 shall survive the sale and delivery of the Mortgage Loans to Purchaser for a person of one (1) year following the Closing Date and shall inure to the benefit of Purchaser, notwithstanding any examination or failure to examine any Mortgage File. Upon discovery within such one (1) year period by either Seller or Purchaser of a breach of any of the foregoing representations and warranties which materially and adversely affects the value of a Mortgage Loan or the interest of Purchaser, the party discovering such breach shall give prompt written notice to the other. Within sixty (60) days of the its discovery or its receipt of notice of any such breach of a representation or warranty, Seller shall cure its breach in all material respects or, as the Purchaser' sole and absolute remedy, shall repurchase the ownership interest in such Mortgage Loan. . ." Agreement, § 5. The contract was signed on or about March 5, 1996, and Defendant asserts that the warranties expired March 5, 1997.
Motions to dismiss under Federal Rule of Civil Procedure 12 (b)(6) are "disfavored in the law" and courts "will rarely encounter circumstances which justify granting such a motion." Mahone v. Addicks Util. Dist., 836 F.2d 921, 926 (5th Cir. 1988). A motion to dismiss is granted only "if it appears beyond doubt that the Plaintiff can prove no set of facts in support of his claim which would entitle him to relief" Conley v. Gibson, 355 U.S. 41, 45-6 (1957). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974).
B. Section 19 and 8(b) claims
The limitation in Section 5 is inapplicable, on its face, to the claims brought under Sections 19 and 8(b) of the Agreement, and therefore those claims cannot be dismissed for failure to state a claim.
C. Section 5 claims
Plaintiffs assert two claims under Section 5 of the Agreement. The first claim seeks damages not for breach of the warranties set forth in Section 5(b), but for EMC's failure to notify and cure as required by the last paragraph of Section 5. (Complaint ¶ 35) This claim is not, as Defendant asserts, a breach of warranty claim, but rather seeks to hold EMC liable for failure to comply with its obligations under Section 5. Thus it does not fall under the limitations on warranties in the Agreement.
Paragraph 35 states "Moreover, EMC Mortgage breached Section 5, because it failed to notify Leader Federal that the warranties and representations contained in Section 5 had been breached and failed to cure such breach or repurchase the Eisenberg Loan."
The second claim, however, does seek damages for breach of the warranties in Section 5(b) of the Agreement. (Complaint ¶ 34) The Court agrees with Defendant that the limitation provision in Section 5 requires that a dispute over a breach of warranty must be brought within one year, and the remedy under the Agreement for breach of warranty was cure by repurchase. Limitations on remedies and the time period for warranties are common, and are commonly upheld by courts. See, e.g. Arkwright-Boston Mfrs. Mut. Ins. Co. v. Westinghouse Elec. Corp., 844 F.2d 1174 (5th Cir. 1988); cf TEX. Bus. COMM. CODE §§ 2.316, 2.719. Therefore, the breach of warranty claim may be barred by the limitation in Section 5.
Paragraph 34 states "EMC Mortgage further breached its obligations under Section 5(b) of the Purchase Agreement because the information relating to the Eisenberg Loan was untrue and incorrect. . . ."
However, Plaintiff asserts that Defendant EMC is equitably estopped from asserting the one year limitation in Section 5 because of EMC's concealment of the Eisenbergs' dispute over servicing of their loan. Arguably, Union Planters did not have notice of EMC's breach of warranty until the Eisenberg's filed suit in May of 1997, and had no means to discover the warranty breach until after the one year limitation expired. It is a question of fact (1) whether Leader Federal or Union Planters had constructive or actual knowledge of EMC breach of warranty though Leader Federal's communications with the Eisenbergs, and (2) whether EMC concealed their communications with the Eisenbergs in order to hide their breach of the warranties in the Agreement. Plaintiff is entitled to introduce evidence on these questions of fact. Therefore, Plaintiffs claim for breach of warranty (Complaint ¶ 34) is not dismissed.
In sum, Defendant's motion to dismiss Plaintiff' s breach of contract and warranty claims for failure to state a claim is DENIED.
II. FAILURE TO PLEAD FRAUD WITH PARTICULARITY: FRAUD CLAIM
Defendants further move to dismiss Plaintiff's misrepresentation claim (Complaint ¶¶ 42-52) for failure to comply with Fed.R.Civ.P. 9(b). Federal Rule of Civil Procedure 9(b) requires that in a fraud case, the allegations of fraud must be pled with particularity — that is, the plaintiff must specifically state the time, place and contents of the alleged false representations, as well as the identity of the person making the misrepresentations and what that person obtained thereby. See Williams v. WMX Technologies, 112 F.3d 175, 177 (5th Cir. 1997). The Court's interpretation of Rule 9(b) is to be harmonized with the general principles of Rule 8, which requires only that a complaint give the defendant fair notice of the plaintiff's claim and the grounds upon which it rests. See Norman v. Apache Corp., 19 F.3d 1017, 1023 (5th Cir. 1994). The application of the Rule 9(b) standard is flexible and depends upon the particular circumstances of the litigation at bar. See Shushany v. Allwaste, Inc., 992 F.2d 517, 521 (5th Cir. 1993).
Upon review of the Complaint, it is clear that it states facts sufficient to notify Defendants of the specific misrepresentations they are alleged to have made. Union Planters alleges in its Complaint that time, place and contents of the misrepresentations. For example, the first alleged misrepresentation is contained in the Mortgage Loan Schedule attached to the Agreement signed by David Lehman on March 5, 1996 that erroneously states the principal balance of the Eisenberg Loan. (Complaint ¶ 643(a)). Indeed, Plaintiff generously attaches to the Complaint the documents that allegedly contained false statements or that Defendants failed to disclose. (Complaint Ex. B, C, F, G, H, I, J, L, K).
Although the Complaint does not identify the particular person making the misrepresentations, but rather states that "EMC Mortgage" committed fraud, in its Response filed March 22, 1999, Plaintiff clarifies that David Lehman, the CEO of EMC Mortgage, made factual representations when he entered into the Agreement on March 5, 1996. The Court considers this statement sufficient to cure any deficiency in the original pleadings. Further, Plaintiff alleges that the misrepresentations were made with intent to induce Leader Federal to enter into the Agreement, thereby satisfying the Fifth Circuit requirement that the Complaint allege what Defendant obtained by the misrepresentation. (Complaint ¶ 649). Further specificity is not required by either Rule 9(b) or Rule 8.
In sum, the Court finds that Plaintiff's Complaint pleads fraud with sufficient particularity to satisfy the requirements of Fed.R.Civ.P. 9(b) and therefore Defendant's Motion to Dismiss the fraud claim is DENIED.
III. CONCLUSION
For the reasons stated above, Defendant's Motion to Dismiss, or Alternatively, for More Definite Statement is DENIED.
SO ORDERED.