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Wells Fargo Bank, N.A v. Lasalle Bank N.A

October 11, 2011

WELLS FARGO BANK, N.A., PLAINTIFF,
v.
LASALLE BANK N.A., DEFENDANT.



The opinion of the court was delivered by: Judge George M. Marovich

MEMORANDUM OPINION AND ORDER

Plaintiff Wells Fargo Bank, N.A. (as Trustee for the Certificate holders of Commercial Mortgage Pass-Through Certificates, Series 2006-MF2, and as Trustee for the Certificate holders of Commercial Mortgage Pass-Through Certificates, Series 2006-MF3, acting by and through Crown NorthCorp, Inc. as Special Servicer) ("Wells Fargo") filed a three-count complaint against LaSalle Bank, N.A. ("LaSalle").*fn1 Plaintiff claims that defendant breached three warranties it made in mortgage loan purchase agreements. LaSalle moves to dismiss the claims brought by Wells Fargo. For the reasons set forth below, the Court grants in part and denies in part the motion to dismiss.

I. Background

For purposes of this motion to dismiss, the Court takes as true the allegations in plaintiff's complaint.

In or about 2006, LaSalle Bank originated a series of commercial real estate mortgage loans for securitization. Two groups of loans, the "MF2 Loans" and the "MF3 Loans", were each worth more than $400,000,000.00. In 2006, LaSalle sold the MF2 Loans and the MF3 Loans to an affiliated entity, LaSalle Commercial Mortgage Securities, Inc. ("LaSalle CM") pursuant to Mortgage Loan Purchase Agreements (the "MLPAs").

LaSalle CM, in turn, transferred and sold the MF2 Loans and the MF3 Loans, respectively, to the MF2 Trust and the MF3 Trust. The trusts were created pursuant to Pooling and Servicing Agreements ("PSAs"). The MF2 Trust and the MF3 Trust elected to be treated as Real Estate Mortgage Investment Conduits (for purposes of the Internal Revenue Code), which is to say that they are able to pass through their mortgage-payment income to the beneficial owners of the trusts (the "certificate holders") without the trusts' being subject to federal income tax. Wells Fargo is the Trustee for the MF2 Trust and the MF3 Trust.

When LaSalle sold the MF2 Loans and the MF3 Loans to LaSalle CM under the MLPAs, LaSalle made certain warranties and representations. Under the PSAs, LaSalle CM transferred to plaintiff its rights under the MLPAs, including its rights to enforce any breach of the warranties and representations. Plaintiff's claims in this case are for breach of those warranties.

In Count I, plaintiff asserts that LaSalle breached warranties 10(a) and 10(b) of the MLPAs. Warranty 10(a) states, in relevant part:

The Mortgage Loan documents for each Mortgage Loan contain enforceable provisions such as to render the rights and remedies of the holder thereof adequate for the practical realization against the Mortgaged Property of the principal benefits of the security intended to be provided thereby, including realization by judicial or non-judicial foreclosure . . . (MLPA Exhibit B ¶ 10(a)). Warranty 10(b) states, in relevant part:

[S]uch Mortgage Loan documents taken as a whole are enforceable to the extent necessary and customary for the practical realization of the principal rights and benefits afforded thereby. (MLPA Exhibit B ¶ 10(b)). Plaintiff alleges that LaSalle breached these warranties "with respect to all Loans secured by properties located in the states of Oklahoma and Washington (the 'Oklahoma and Washington Loans'), because the mortgage loan documents for these loans do not include sufficient power-of-sale language to allow for a non-judicial foreclosure and practical realization against the mortgaged properties." (Plaintiff's Complaint ¶ 19).

In Count II, plaintiff asserts that LaSalle breached warranty 35. Warranty 35 states: An appraisal of the related Mortgaged Property was conducted in connection with the origination of such Mortgage Loan, and such appraisal satisfied the guidelines in Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as in effect on the date such Mortgage Loan was originated. (MLPA Exhibit B § 35). Plaintiff alleges that LaSalle breached warranty 35 "with respect to all Loans because, inter alia, LaSalle's appraisal ordering process violated the independence requirements of FIRREA." (Plaintiff's Complaint § 21).

In Count III, plaintiff asserts that LaSalle breached warranty 23. Warranty 23 states, in relevant part:

The origination, servicing and collection practices used by the Seller . . with respect to such Mortgage Loan have been in all material respects legal and have met customary industry standards. (MLPA Exhibit B § 23). Plaintiff alleges that LaSalle breached warranty 23 "with respect to all Loans because LaSalle's origination and servicing of the Loans did not meet customary industry standards in many ways . . ." (Plaintiff's Complaint ¶ 23). Plaintiff goes on to describe the ways in which the origination and servicing failed to meet industry standards. For example, plaintiff alleges that LaSalle, instead of reviewing and analyzing the operating statements and rent rolls for properties being financed, relied on summaries prepared by brokers. In addition, LaSalle failed to analyze in depth the financial condition of the borrowers and guarantors of the Loans. LaSalle had a policy of awarding "top 10 brokers" leniency with respect to underwriting. In addition, LaSalle did not have its staff inspect the collateral properties or interview property managers regarding occupancy history and renovations. In fact, LaSalle prohibited its staff from communicating with borrowers or guarantors.

As relief, plaintiff seeks to have LaSalle repurchase all of the MF2 and MF3 Loans, except "those loans which have been paid in full on the date" ...


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