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Appellate Division Review - Jan. 2016

Courts Address Challenges to Legislation and Power to Regulate

Source: New York Law Journal

By The Honorable E. Leo Milonas, Andrew C. Smith

Article

By The Honorable E. Leo Milonas, Andrew C. Smith

01.26.16

This article was originally published in the New York Law Journal on January 25, 2016.

The Appellate Division's four departments begin the new year with the daunting task of keeping up with their heavy caseloads despite three to six vacant positions in each, including the presiding justice positions in the First and Fourth Departments. Below we highlight some of their opinions from the busy last quarter of 2015, which clarify the rights, remedies and privileges of private litigants and governmental entities.

First Department Equitable Relief

In an investor-friendly ruling, Nomura Home Equity Loan, Inc., Series 2006-FM2 v. Nomura Credit & Capital,1 the First Department held that a limitation on remedies clause does not foreclose money damages where specific performance is impossible.

HSBC Bank as Trustee (HSBC), suing on behalf of four residential mortgage-backed securities (RMBS) trusts, alleged that Japanese investment bank Nomura Credit & Capital Inc. and its affiliates (Nomura) had breached certain representations and warranties regarding loans it sold to the trusts under Mortgage Loan Purchase Agreements (MLPAs).

Each MLPA provided that the "sole remedy" for such breaches was "to cure [the defect or breach] or repurchase" the loan. HSBC sought monetary damages where the cure or repurchase remedy was impossible (because the loans had been liquidated or foreclosed), which Nomura argued were barred by the "sole remedy" provision.

In a unanimous decision by Justice John M. Sweeny, the First Department sided with HSBC, noting to find otherwise would "leave plaintiffs without a remedy." The court explained that the contractual limitation on remedies was subject to an equitable exception to New York's general rule favoring freedom of contract. "[W]here the granting of equitable relief appears to be impossible or impracticable, equity may award damages in lieu of the desired equitable remedy."

Download: Appellate Division Review

1. 2015 N.Y. Slip Op. 07458 (1st Dept. Oct. 13, 2015).

Tags
Litigation, New York