Opinion
No. X08 CV09-5010295S
September 27, 2010
Memorandum of Decision on Motion to Strike (No. 156.00)
Procedural/Factual Background
Plaintiff Carrington Asset Holding Company, LLC and its affiliates Carrington Investment Partners, L.P., Carrington Capital Management, LLC (collectively "Carrington") and Stanwich Asset Acceptance Company, LLC ("Stanwich") commenced this action by serving a complaint against defendant American Home Mortgage Servicing, Inc. ("American Home" or "AHMSI") on February 9, 2009 alleging breach of contract (First and Second Counts), breach of fiduciary duty (Fourth Count), and violation of the Connecticut Unfair Trade Practice Act (Conn. Gen. Stat. § 42-110a) (Fifth Count). Plaintiffs have asked for specific performance (Third Count) and for money damages.
Between 2005 and 2006 Carrington purchased $128 million worth of mortgage-backed securities in the form of Class CE Certificates representing beneficial interests in securitized pools of mortgages held by four Real Estate Mortgage Investment ("REMIC") trusts. These were low grade high risk securities issued by four trusts. (Complaint ¶¶ 16-17.) The purchase comprised 5 percent of the total value of the four trusts, but included the entirety of Class CE Certificates available in each trust. ( Id. ¶ 20.) Three of the trusts (Series 2005 OPT1, 2, and 3) were organized by Citigroup Mortgage Loan Trust, Inc. ("Citigroup") as the "Depositor" of pools of home mortgages into each trust which would issue certificates of participation in the trusts to investor-certificateholders. The fourth trust (Series 2006 OPT1) was organized in 2006 by plaintiff Stanwich as Depositor. Both Depositors enlisted trustees. Citigroup engaged Deutsche Bank National Trust Company ("Deutsche Bank") and Stanwich engaged Wells Fargo Bank, N.A. ("Wells Fargo), to oversee the sale of certificates of beneficial ownership to investors and to administer the trusts. The Trustees in turn hired Option One Mortgage Corp. ("Option One") to service the mortgages, including foreclosures and dispositions of properties acquired through foreclosure (real estate owned, or "REO"). The details of these arrangements are described in virtually identical Pooling and Service Agreements (PSA) for each trust. In April 2008 AHMSI acquired Option One and its contractual obligations under the PSAs of the four Trusts. As a result AHMSI became the successor Servicer for the Trusts.
Each trust issued five grades of certificates: Class A, Mezzanine, Residual, Class P, and Class CE. Id. ¶ 15. These certificates carried varying degrees of risk. Id. ¶¶ 16-17. Class A holders were the first to collect on mortgage returns, while Class CE holders were the last to collect. Id. ¶¶ 17-18. The converse was also true, Class CE holders were the first to suffer a loss as a result of default or foreclosure, while Class A holders were the last to have their returns garnished. Id. Carrington was aware of this fact and so when it purchased these securities in 2005-6, it negotiated special rights with the Servicer. Id. ¶ 21.
Such rights are described in section 12.01 of the 2005 PSA (the three Citigroup Trusts), and in section 14.01 of the 2006 PSA (the Stanwich Trust). AHMSI has assumed the duties of Servicer under both agreements by virtue of its acquisition of Option One. Id. The rights specified in these sections apply to Class CE Certificateholders, and are unique to Carrington since Carrington is the sole owner of the CE Certificates. Carrington is given the special right to receive regular reports about the mortgages backing the certificates, including delinquencies, foreclosures, and REO dispositions and the right to "direct the Servicer in performing its duties under this Agreement," which "[t]he Servicer must accept . . . subject to the duties of the Servicer set forth in this Agreement." (2005 PSA § 12.02; 2006 PSA § 14.02.)
The plaintiff alleges that the previous servicer Option One honored the CE Certificateholder's Special Rights by complying with Carrington's demands regarding the sale or disposition of REO properties, and that American Home also honored those instructions "for several months" after it took over for Option One in about April 2008 (Complaint ¶¶ 26-38.) Then, it is claimed, "the Servicer's long history of honoring the Class CE Certificateholder's unique rights suddenly changed in September of 2008 . . ." just prior to the rate of liquidation of REO properties increasing dramatically from an average of 3.38% from January through October 2008 to 14.71% and 36.33% respectively for the months November and December 2008. (¶¶ 42, 58.) Carrington claims that it had requested various reports and information about certain defaulted mortgages from American Home in August and September of 2008, but received a letter from American Home dated September 17, 2008 disputing the CE Certificateholder's right to the information being sought and its right to direct the Servicer regarding REO properties. (¶¶ 55-56.) Since then, it is claimed, American Home has proceeded to ignore Carrington's objections and directions and began liquidating REO properties "at an extremely rapid rate, in many cases holding auctions of REO properties and otherwise essentially engaging in what amounted to `fire sales' of such properties." (¶ 57.) For instance, it is claimed that liquidations in the last two months of 2008 ran at 177 and 146 per month, whereas previously there had been about 40-50 liquidations per month. (¶ 59.) Plaintiffs concluded that American Home "would not stop breaching the PSAs and demanded again in December 2008 by letter, that it revert to honoring Carrington's special rights, pointing out the millions of dollars in damages [American Home's] breaches had caused (¶ 64) but American Home" has not complied with that letter.
Plaintiffs allege that American Home's decision in October 2008 to cease providing information to Carrington regarding foreclosed properties or the disposition thereof and to cease honoring Carrington's directions under the CE Certificateholder's Special Rights provision of the PSAs was made to protect its own self-interests in that it was required as Servicer under the PSAs to make "Advances" and "Servicing Advances" to cover delinquent payments of principal and interest on the mortgage loans in the pool, which are essentially monthly payments made from the Servicer's own funds that remain unreimbursed while a REO property remains unsold, but then is recouped as a priority item from the proceeds of REO properties as they are sold. (¶¶ 45-48.) It is alleged that in September 2008 American Home reached its borrowing limit on its $1.2 billion bank line of credit to finance those advances, and, in fact, was required by the lenders to pay down approximately $200 million of the $1.2 billion it had borrowed. (¶¶ 49-51.) In order to pay down that $200 million, it is claimed, American Home determined to liquidate REO properties in an unduly rapid fashion and recoup its advances as soon as possible from the sales proceeds. (¶¶ 53-55.) Carrington claims that American Home's breaches have benefitted it at the expense of Carrington (as Class CE Certificateholder, and consequently holder of a "first loss" position) causing it to suffer millions of dollars in damages by the unduly low amounts being received on the REO properties via the wrongful "fire sales" which, if permitted to continue, will eventually cause great harm to other certificateholders as well. (¶ 76.)
Carrington complained to AMSHI about these practices in September 2008, id. ¶ 53, and wrote a formal letter of complaint in December 2008, id. ¶ 64. These grievances were eventually made known to the trustees, Deutsche Bank and Wells Fargo, in letters dated January 13, 2009. Id. ¶ 69. In those letters Carrington requested that the Trustees replace AHMSI with a new Servicer, but neither Trustee expressed an interest in Carrington's proposal. Id. Carrington and Stanwich then commenced the instant action on February 9, 2009. On March 19, 2009 Defendant moved to dismiss (No. 104.00) plaintiff's claims on grounds that the plaintiffs lacked standing to bring this action because they had failed to comply with the "no-action clause" of each PSA which provides:
No Certificateholder shall have any right by virtue of any provision of this Agreement to institute any suit, action, or proceeding in equity or law, upon or under or with respect to this Agreement, unless such holder previously shall have given to the Trustee a written notice of default and of the continuance thereof, as hereinbefore provided, and unless also the Holders of Certificates entitled to at least 25% of the Voting Rights shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 15 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding.
It is undisputed that Carrington and Stanwich commenced this action without securing the consent of at least 25% of the Voting Rights of other certificateholders of the trusts.
In a preliminary ruling of February 23, 2010, this court held that (1) the no-action clauses were valid and enforceable under New York Law, and binding on Carrington; and (2) the no-action clauses did not apply to Stanwich's claims as a plaintiff or co-plaintiff because that clause only bars an action by a "certificateholder" (and Stanwich is not a certificateholder). The court therefore denied the motion to dismiss as the claims of Stanwich as the sole plaintiff on the Second Count (breach by AHMSI of the 2006 PSA) and as to the claims of Stanwich as co-plaintiff under the Third, Fourth, and Fifth Counts. The court did not rule on the motion to dismiss as to the claims of Carrington because of unresolved issues of fact related to Carrington's claim that compliance with the no-action clauses should be excused under the doctrine of futility. There was an evidentiary hearing on the futility issue on August 24-25, 2010, and briefing is still in progress.
Carrington Asset Holding Company, LLC et als v. American Home Mortgage Servicing, Inc., Docket No. X08CV09-5010295S, Superior Court, Complex Litigation Docket at Stamford, (February 23, 2010, Jennings, J.), 2010 Ct.Sup. 6156, 49 Conn. L. Rptr. 483.
Now before the court is defendant's motion to strike all claims of Stanwich on the grounds that (1) Stanwich claims to be suing on behalf of the 2006 OPT1 Trust and its Certificateholders, but it is not a fair and adequate representative of that trust or its Certificateholders, and so does not state a claim upon which relief can be granted and (2) Stanwich has not joined Wells Fargo, the Trustee for the 2006 OPT1 Trust, as a party, and therefore has failed to join a necessary and indispensable party to this litigation.
Applicable Law/Standard for Review
Each PSA specifies that "This agreement shall be construed in accordance with the laws of the State of New York, without regard to the conflicts of laws provisions thereof, and the obligations, rights, and remedies of the parties hereunder shall be determined in accordance with such laws without regard to the conflicts of laws provisions thereof." Carrington is a Connecticut corporation based in Greenwich, and AHMSI is a Texas corporation licensed to do business in Connecticut. Carrington has chosen to commence this action in the Superior Court of Connecticut. Under these circumstances the Court will follow Connecticut rules of procedure while applying the substantive law of New York. The difference between procedure and substantive is often nebulous as the two areas frequently overlap. For the purposes of this case it suffices to note that the Court will use Connecticut law for the standard of review for a Motion to Strike. New York law will be used to analyze the terms of the PSA and the merits of the claims arising from that contract.
"Whenever any party wishes to contest (1) the legal sufficiency of the allegations of any complaint . . . or of any one or more counts thereof, to state a claim upon which relief can be granted, or (2) the legal sufficiency of any prayer for relief in any such complaint . . . that party may do so by filing a motion to strike the contested pleading or part thereof." Practice Book § 10-39(a). "The purpose of a motion to strike is to contest . . . the legal sufficiency of the allegations of any complaint . . . to state a claim upon which relief can be granted." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498 (2003). "It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted." (Internal quotation marks omitted.) Asylum Hill Problem Solving Revitalization Assn. v. King, 277 Conn. 238, 246 (2006). "Moreover . . . [w]hat is necessarily implied [in an allegation] need not be expressly alleged." (Internal quotation marks omitted.) Id. If, construing the complaint most favorably to sustaining its legal sufficiency, facts provable in the complaint would support a cause of action, the motion to strike must be denied. Greco v. United Technologies Corp., 277 Conn. 337, 347 (2006).
Discussion A. Claim that Stanwich is Not a Fair and Adequate Representative of the Trust or the Certificateholders
The 2006 PSA (and each other PSA) specifically provides in § 6.05 that "The Depositor may, but is not obligated to, enforce the obligations of the Servicer under this Agreement . . ." Stanwich is suing AHMSI pursuant to that provision. There is no doubt that Stanwich is suing on behalf of the 2006-CPT-1 Trust. The Second Count is denominated as "Stanwich's Breach of Contract Claim" and alleges that "Section 6.05 of the 2006 PSA endows Stanwich, as Depositor, with the right to enforce the Servicer's obligations under that Agreement." (¶ 94); "AHMSI has breached that Agreement . . ." (¶ 95); and "[a]s a direct and proximate result of the foregoing breaches, the depositor is entitled to specific performance by the Servicer of the 2006 PSA's terms and to seek damages on behalf of the trust it established under the 2006 PSA." (¶ 98.) (Emphasis added.) Pointing out that there is no allegation of any damages sustained by Stanwich and that Stanwich has incorporated into its Second Count and has joined with Carrington in the Third, Fourth, and Fifth Counts in making all the allegations of Carrington's "Special Rights" under the PSA and AHMSI's failure to follow Carrington's instructions and Carrington's damages allegedly sustained because of the timing and pricing of REO sales, defendant claims that "on its face, the complaint shows that Stanwich as well as Carrington is suing to enforce Carrington's special rights even through Stanwich and Carrington admit that these purported rights are in conflict with the interests of other Certificateholders." (Memorandum in support, p. 4.)
Neither party has come up with any direct precedent for striking or not striking a complaint under these circumstances. The defendant instead has analogized the situation to a shareholder derivative action, where the plaintiff shareholder suing on behalf of the corporation "assumes a position of a fiduciary character" and sues ". . . not for himself alone, but as a representative of a class comprising all who are similarly situated." Barrett v. Southern Connecticut Gas Company, 172 Conn. 362, 372 (1977). Because of this status, the derivative plaintiff "must `fairly and adequately' represent those others" interests . . . Id. From those precepts it follows that ". . . the defendants in a shareholder derivative action may properly attack the standing in equity of the nominal plaintiff on the grounds that the plaintiff cannot assure the court that he will provide fair and adequate representation . . ." Id. 373. There are several reasons why the analogy is invalid. The first is alluded to in the foregoing quote where the court referred to "standing in equity." The "fair and equitable representation" standard clearly has its roots in the equitable nature of a shareholder derivative action: "Among the equitable standards is that raised by the defendant's fifth special defense, namely the requirement that the nominal plaintiff fairly and adequately represent the shareholders . . ." Id. 372. This case is not equitable in nature. The claims are breach of contract and common-law and statutory torts. Furthermore, the Barrett holding is premised to a large extent on the self-chosen aspect of the stockholder plaintiff:
At oral argument counsel also used the analogy of a class action, which will not be separately discussed since the analysis is the not substantially different. "In this respect the derivative action resembles other representative suits, including the class action . . ." Barrett, 371.
For this proposition the Barrett court cited Federal Rules of Civil Procedure, Rule 23.1 which provides that a ". . . derivative action may not be maintained if it appears that the plaintiff does not fairly and adequately represent the interests of the shareholders or members similarly situated in enforcing the right of the corporation or association." Since Barrett was decided in 1977 our legislature has codified a somewhat similar but not identical rule in Conn. Gen. Stat. § 33-721 which provides in relevant part: "No shareholder may commence or maintain a derivative proceeding unless the shareholder . . . (2) fairly and adequately represents the interests of the corporation in enforcing the rights of the corporation."
And while the stockholders have chosen the corporate director or manager, they have no such election as to the plaintiff who steps forward to represent them. He is a self-chosen representative and a volunteer champion. Id. 372.
In this case all parties have by signing the PSA contract or, in the case of AHMSI being in privity with Option One, an original contracting party, have specifically elected or chosen the Depositor, Stanwich as a party with the unqualified power to "enforce the Servicer's obligations" under the PSA. The "structural conflicts" (in trying to maximize distributions of gain and avoid allocation of loss) between the classes of certificateholders pointed out by defendant are inherent in the very same contract which delegates the power of enforcement of servicing obligations to the Depositor and must be deemed to have been considered not a disqualifying factor with respect to the delegation. There is no ambiguity or room for judicial interpretation of that delegation. Stanwich is not a volunteer champion. In fact Stanwich, having transferred the pool of mortgages into the trust, did not disappear from the transaction. In addition to this power to enforce (or actually perform) the Servicer's obligations, the Depositor retains under § 6.05 access to all records maintained by the Servicer, the right to receive the Servicer's most recent financial statements and other information relating to Servicer's capacity to perform, and the right under certain circumstances to prevent the Trustee from disseminating non-public information received from the Servicer. The Depositor, then, is not an illogical party, in addition to the trustee, to be vested with the power to hold the Servicer to its obligations. Unlike a total stranger to the transaction, the Depositor is positioned as a watchdog with the ability to know, in connection with this highly structured very complicated investment structure, whether or not the Servicer is properly performing its obligation and whether or not the Trustee is properly enforcing those obligations.
The inapplicability of shareholder derivative concepts to other types of lawsuits was confirmed in Chinnici v. Breakwater Key, Inc. et al., Docket No. CV92-295110S, Superior Court, Judicial District of Fairfield at Bridgeport (August 13, 1995, Tobin, J.), 1995 WL 491397 (Conn.Super) [ 14 Conn. L. Rptr. 587] (Prior demand on management requirement of shareholder deriviative action does not apply to an action by condominium unit owners against the condominium association, the management company, and certain individuals: "Stock ownership does not ordinarily apply to condominium unit owners because in condominiums individuals take title to their units while in cooperatives individuals have stock ownership in the cooperative . . .").
Defendants also claim that Stanwich should be disqualified as a plaintiff in this case because it is a subsidiary of a subsidiary of plaintiff. They reference an interrogatory answer where Stanwich states that it is ". . . a single-member Delaware limited liability company. The sole member . . . is Carrington Securities, LP, a Delaware limited partnership [whose] general partner is Carrington Capital Management, LLC [one of the plaintiffs in this case]." This same argument was raised in conjunction with the motion to dismiss when defendants claimed that Stanwich, as a Carrington affiliate should be bound by the no-action clause. In rejecting that argument, I said, "Stanwich is a separate entity from Carrington Investment Partners, LLC — a separate `person.' There is no evidence in the record that it is the mere instrumentality or alter ego of its parent." The irrelevance of the "subsidiary" argument is even stronger here, in ruling on a motion to strike where the ruling must be made strictly on the basis of the allegations of the complaint and logical inferences to be drawn therefrom. There is nothing in the complaint about the capital structure of Stanwich. The only fact pleaded which even touches on any connection between Stanwich and the Carrington entities is that they share the same address at Seven Greenwich Office Park which by itself is meaningless. In ruling on a motion to strike the court cannot base its decision on information outside the pleadings such as an answer to an interrogatory.
This is not a case such as Pimental v. Cherne Industries, Inc., Docket No 524189, Superior Court, Judicial District of New London at New London, (September 4, 1996, Hurley, J.), 119 WL 521173 (Conn.Super.), Conn.Sup. 5370-VVVV, where the court in ruling on a motion to strike filed in a third-party action, did consider a judicial admission made by the moving defendant in its answer to the principal action. An interrogatory answer may be an evidentiary party admission, but it is not a "judicial admission." The consideration of evidence would have the effect of allowing this motion to strike to be an impermissible "speaking demurrer."
Section 6.05 is an express contractual delegation of power to the Depositor to enforce the PSA against the Servicer. As said by the New York Court of Appeals in upholding the enforceability of a no-action clause in a syndicated inter-creditor agreement in Beale Savings Bank v. Sommer, 8 N.Y.3d 318, 326, 865 N.E.2d 1210, 1214 (2007): "An agreement that intends to have individual depositors proceed independently should so provide explicitly." PSA Section 6.05 does just that.
Defendant has argued that Stanwich is in effect acting as a surrogate plaintiff for Stanwich because of the allegations about the "special rights" of the CE Certificateholder and the claims of Carrington's damages without any allegation of any damages sustained by Stanwich. But Stanwich is not suing to recover its own damages. It is expressly suing on behalf of the 2006 trust, and has alleged that the defendant's conduct" . . . has injured both the Trusts' rights to minimize losses suffered on defaulted mortgages in their respective pools, and Carrington's right to receive the benefit of its agreement in acquiring the Class CE certificates." (Complaint, Second Count ¶ 96, incorporated into subsequent counts.) The former allegation is dispositive of this argument. The claim of damages to the trusts must be accepted as true and construed most favorably in favor of Stanwich. Such a construction compels a presumption for purposes of this motion that the 2006 trust at least has suffered some damage from the alleged misconduct of AHMSI's failure to live up to its obligations under the PSA and Stanwich has the right to enforce those obligations.
Stanwich has no right to enforce the Servicer's obligations rights with respect to the three 2005 trusts where Citibank is the Depositor, but has the express right under § 6.05 of the 2006 PSA to enforce the Servicer's obligation with regard to that trust.
B. Claim that Stanwich's Claims Should be Stricken because Stanwich has failed to Join the 2006 Trustee
AHMSI's second point centers on Stanwich's failure to name Wells Fargo, the trustee of the 2006 trust, as a defendant in this action, and that Wells Fargo is an indispensable party to this action.
[A] court may refuse to proceed with litigation if a claim cannot properly be adjudicated without the presence of those indispensable persons whose substantive rights and interests will be necessarily and materially affected by its outcome . . . Parties have been termed indispensable when their interest in the controversy is such that a final decree cannot be made without either affecting that interest or leaving the controversy in such condition that its final disposition may be inconsistent with equity and good conscience . . . Due process requires that such parties be given notice and opportunity to protect their interests by making them a party to the action. Hilton v. City of New Haven, 233 Conn. 701, 722 (1995).
There is no doubt that Wells Fargo, as trustee, has legal title to the res of the trust including the pool of mortgages and the REO properties, and those assets are issue in this litigation. It is accepted law that "As a general rule the trustee is the proper party to sue or be sued on behalf of a trust." 76 AmJur.2d, Trusts, § 656; and that "[a] trustee is a necessary party to assert or defend title to trust property, and is an indispensable party to an adjudication of rights of beneficiaries in a trust. 76 AmJur.2d Trusts § 679, cited in Owusu v. Owusu, Docket No. FA07-4028694S, Superior Court, Judicial District of Hartford (February 24, 2008, Abery-Wetstone, J.) 2008 WL 5903 73 (Conn.Super.). But these general rules are "not inflexible" and "[t]he plaintiff may often accomplish the purpose intended by securing authority from the court for them to defend on in behalf of all." Owusu, *2, citing National Transportation Co. v. Toqet, Conn. 468, 484 (1937). And in Naier v. Beckenstein, Docket No. CV-07-5014236, Superior Court, Judicial District of Hartford (May 15, 2008, McQueeny, J.) 2008 WL 2313372, the court, citing 76 AmJur.2d. Trusts § 672, said that "Absent special circumstances, an action prosecuted for the benefit of a trust estate by a person other than a trustee is not brought in the name of the real party in interest and is demurrable." Id. at *4. This is consistent with the Supreme Court's decision in Biro v. Hill, 214 Conn 1 (1990) where the court held that "necessary parties" are
. . . persons having an interest in the controversy, and who ought to be made parties, in order that the court may act on that rule which requires it to decide on, and finally determine the entire controversy, and do complete justice, by adjusting all the rights involved in it. [B]ut if their interests are separable from those of the parties before the court, so that the court can proceed to a decree and do complete and final justice, without affecting other persons not before the court, the latter are not indispensable parties . . . In short, a party is necessary if its presence is absolutely required in order to assure a fair and reasonable trial. (Citation and internal quotation marks omitted.) Biro, at 6.
The court holds that the general rule does not apply in this case, and that there are special circumstances leading to the conclusion that Wells Fargo is not an indispensable party to this case. Those circumstances will be discussed briefly.
First: Carrington informed the trustees by letter in December 2008 of AHMSI's breaches of its obligations under the PSA, and ". . . in that same letter Carrington also informed the trustees (who were copied on the letter) that they should acknowledge the Servicer's defaults and terminate it." (Complaint, ¶ 64.) And, "Through, inter-alia, phone conversations and correspondence dated January 13, 2009 and January 16, 2009 . . . the trustees have indicated an unwillingness to pursue the instant action . . ." ( Id. ¶ 69.) The notice and opportunity to protect interests components of due process cited in Hilton, supra, have been satisfied.
Second: This case as pleaded will not have direct impact on the res of the trust, that is, the pool of mortgages or the REO properties. It seeks two things only: money damages from a third party, and an order of specific performance ordering that third party, the Servicer, to properly fulfill its obligations under the PSA. These objectives, if they are found to have merit, can be decreed without affecting the trustee's holding of assets or otherwise. The presence of the trustee in the suit is not "absolutely required" in order to adjudicate these claims. Biro, supra. If the trustee is a necessary witness on any element of any cause of action, it can be subpoenaed to testify or produce documents. If the trustee feels threatened, or that its presence in the case would serve its purposes, it can petition to be made a party as Deutsche Bank has done with respect to the three 2005 trusts.(Pleading No. 204.)
Third: The presence of Wells Fargo as a party to this suit is not necessary to allocate any damages among the beneficiary-certificateholders. The court or jury is only being asked to award damages in favor of the representative plaintiff against the defendant — not to allocate those damages among the classes of beneficiaries. Stanwich has clearly sued on behalf of the trust and intends to turn over any damages received to Wells Fargo as trustee to allocate among the certificateholders in accordance with the terms of the PSA. If the judgment should be for the plaintiff and include an award of damages, the trustee can make that allocation outside the litigation. The absence of Wells Fargo as a party will not impede that function.
Fourth: There is no claim pleaded against Wells Fargo, trustee. By drawing together factual allegations from disparate corners of the 116-paragraph complaint, defendant has coupled an allegation that the Servicer is the agent of the trusts with an allegation that the trustee's duties include identifying and recognizing breaches of duty by the Servicer to come up with a claim by Stanwich against Wells Fargo as another reason why Wells Fargo is an indispensable party to the suit. But there is no claim pleaded against Wells Fargo. Plaintiff has directed no count against Wells Forgo nor does it seek any relief against Wells Fargo. The agency allegation is part of plaintiff's claim that AHMSI has fiduciary duties to the trust and its certificateholders. The allegation of the trustee's duties appears in the "Common Allegations" setting forth by way of background the very complicated inter-relationships of the various parties and non-parties. There is no threat to Wells Fargo contained in those allegation which mandates its being a party to this action.
Fifth: In Section 6.05 of the 2006 PSA Wells Fargo has in clear, express, and unambiguous terms delegated by contract to Stanwich the non-exclusive power to enforce the obligations of the Servicer. None of the cases cited by defendant involved a plaintiff holding such a clear delegation of power. For a court to hold that Stanwich cannot exercise that power without also joining Wells Fargo would be to re-write the contract by ignoring a clear contract provision in violation of the "cardinal principle of contract construction that all provisions of a contract should be given effect if possible." Galli v. Metz, 973 F.2d 145, 149 (2nd Cir. 1992) ("under New York law an interpretation of a contract that has the effect of rendering at least one clause superfluous or meaningless . . . is not preferred and will be avoided if possible"). To deny the right to maintain this action to the party to whom all parties by express written agreement have granted (or consented to the granting) of a power to enforce the servicer's obligations under the contract would be a total contradiction of the strong policy of freedom to contract in private matters as recognized under the law of New York, Board of Education v. Areman, 41 N.Y.2d 527, 531, 362 N.E.2d 943 (1977) ("Different from private matters, where freedom to contract is virtually unlimited, public school matters are, from time to time, subject to restrictive policies . . ."). The law of Connecticut is in accord:
Wells Fargo as the trustee who hired AHMSI obviously also has the power to enforce the Servicer's obligations, which power is not surrendered in the contract. The trustee has the power under § 7.01 of the PSA to terminate the servicer for uncured breaches of the PSA upon the giving of notice. But, in this case, Wells Fargo has declined to exercise that power, leaving Stanwich as Depositor to exercise its right to enforce.
There is a strong public policy in Connecticut favoring freedom of contract. It is well beyond the need for citation that parties are free to contract for whatever terms on which they may agree . . . Accordingly, in a private dispute, a court must enforce the contract as drafted by the parties and may not relieve a contracting party from anticipated or actual difficulties undertaken pursuant to the contract, unless the contract is voidable on grounds such as mistake, fraud, or unconscionable.
Order
For the foregoing reasons the Motion to Strike is denied.