Defendants Column Financial, Inc. (Column) and Credit Suisse (USA), Inc. (Credit Suisse) move to dismiss the Complaint pursuant to CPLR 3211. Defendants' motion is denied for the reasons that follow.

Procedural History

This is a commercial mortgage-backed securities put-back action. Plaintiff Torchlight Loan Services, LLC (Torchlight) seeks to compel defendants to repurchase: (1) a loan (the West Wing Loan) secured by the west half (the West Wing) of an "L" shaped residential apartment building in Circle Pines, Minnesota (the Circle Pines Property);^[FN1] and (2) a loan (the Elgin Loan) secured by a commercial property in Elgin, Illinois (the Elgin Property).

On September 7, 2011, Torchlight commenced an action against Column in this court, [*2]asserting a put-back claim for the Elgin Loan. After Column removed the case to federal court, the case was dismissed in part in an order dated July 25, 2012. See Torchlight Loan Servs., LLC v Column Financial, Inc., 2012 WL 3065929 (SDNY 2012) (Sweet, J.). The federal court dismissed the fraud and declaratory judgment claims on the merits and some of the breach of contract claims based on federal pleading standards. See id. at *4, accord Ashcroft v Iqbal, 556 US 662 (2009) and Bell Atl. Corp. v Twombly, 550 US 544 (2007). The federal court, however, explicitly upheld Torchlight's appraisal claim, discussed in detail below. Id. at *8-9. Torchlight was given leave to amend, which it did on August 13, 2012, and a subsequent motion to dismiss was filed. However, during the course of briefing that motion, it became apparent that federal diversity jurisdiction was lacking, so Torchlight discontinued the action without prejudice on November 5, 2012.^[FN2] Additionally, that same day, Torchlight discontinued a previously filed but not yet served put-back case against defendants regarding the West Wing Loan.

Torchlight commenced the instant action on November 19, 2012. Defendants again removed the case to federal court. In an order dated July 24, 2013, the federal court remanded the case pursuant to the Forum Defendant Rule, 28 USC § 1441(b). See Torchlight Loan Servs., LLC v Column Financial, Inc., 2013 WL 3863887, at *2-3 (SDNY 2013) (Sweet, J.). Upon remand, on September 18, 2013, defendants again moved to dismiss the Complaint.

Factual Background

As this is motion to dismiss, the facts recited are taken from Complaint and the

documentary evidence.

The MLPA & PSA

Torchlight is the special servicer of the subject mortgage-backed security trust, which contains the West Wing Loan and the Elgin Loan. ¶¶ 1, 5, 12. Column purchased the loans from non-party Credit Suisse First Boston Mortgage Securities Corp. pursuant to a Mortgage Loan Purchase Agreement dated as of May 1, 2007 (the MLPA). ¶ 2. Column transferred the loans to the subject trust pursuant to a Pooling and Service Agreement, also dated as of May 1, 2007 (the PSA). ¶ 3. Investors purchased certificates in the trust. Id. As always, the investors, who do not conduct due diligence on the underlying loans before investing, are protected by "representations and warranties" in the MLPA and PSA, which warrant myriad facts about the loans to assure the investors that their investment is sound. Under the MLPA and PSA, if a warranty is found to be false, Torchlight can demand that Column buy back the non-conforming loans for a defined repurchase price and, if Column refuses to do so, Torchlight can sue. ¶ 4.

The MLPA representations and warranties at issues are:

(v) To [Column's] knowledge . . . the borrower, lessee and/or operator was in possession of all licenses, permits and authorizations then required for use of the Mortgaged Property which were valid and in full force and effect as of the origination date and to [Column's] actual knowledge, such licenses, permits and authorizations are still valid and in full force and effect[.] [*3]

(x) Each related Mortgage is a valid and enforceable first lien on the related Mortgaged Property . . . and such Mortgaged Property is free and clear of any mechanics' and materialmen's liens which are prior to or equal with the lien of the related Mortgage, except those which are insured against by a lender's title insurance policy[.]

(xii) [Column] has no knowledge that the material representations and warranties made by the . . . borrower in the related Mortgage Loan Documents are not true in any material respect.

(xiii) The lien of each related Mortgage is a first priority lien on the fee or leasehold interest of the related borrower in the principal amount of such Mortgage Loan . . . subject only to . . . covenants, conditions and restrictions, rights of way, easements and other matters of public record, none of which, individually or in the aggregate, materially interferes with the current use of the Mortgaged Property or the security intended to be provided by such Mortgage . . . or the value of the Mortgaged Property.

(xv) Except as set forth in a property inspection report or engineering report prepared in connection with the origination of the Mortgage Loan, as of the later of the date of origination of such Mortgage Loan or the most recent inspection of the related Mortgaged Property by [Column] . . . each related Mortgaged Property is free of any material damage that would affect materially and adversely the use or value of such Mortgaged Property as security for the Mortgage Loan.

(xx) Neither [Column] nor to [Column]'s knowledge, any originator, committed any fraudulent acts during the origination process of any Mortgage Loan. . . .

(xxiv) To [Column]'s knowledge, there is no [] non-monetary default, breach, violation or event of acceleration existing under the related Mortgage Loan . . . [which] would materially and adversely affect the use or value of the Mortgage Loan or the related Mortgaged Property.

(xxvi) Each related Mortgage contains provisions so 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, including realization by judicial or, if applicable, non-judicial foreclosure or, subject to applicable state law requirements, appointment of a receiver. . . .

(xxix) All improvements included in the related appraisal are within the boundaries of the related Mortgaged Property, except for encroachments onto adjoining parcels for which [Column] has obtained title insurance against losses arising therefrom or that do not materially and adversely affect the use or value of such Mortgaged Property.

(xxxv) The Mortgage Loan is directly secured by a Mortgage on a commercial property . . . and . . . the fair market value of such real property, as evidenced by an appraisal . . . conducted within 12 months of the origination of the Mortgage Loan, was at least equal to 80% of the principal amount of the Mortgage Loan.

(xl) Each Mortgaged Property (a) is located on or adjacent to a dedicated road, or has access to an irrevocable, easement permitting ingress and egress, (b) is served by public utilities and services [*4]generally available in the surrounding community or otherwise appropriate for the use in which the Mortgaged Property is currently being utilized

(li) Based upon an opinion of counsel and/or other due diligence . . . the improvements located on or forming part of each Mortgaged Property comply with applicable zoning laws and ordinances, or . . . if any such improvement does not so comply, such non-compliance does not materially and adversely affect the value of the related Mortgaged Property.

Torchlight sent numerous repurchase demands to Column for both the West Wing Loan and the Elgin Loan. ¶¶ 146-158. Column refused to repurchase the loans. Id. As a result, Torchlight commenced litigation to enforce Column's repurchase obligations. Torchlight also sued Credit Suisse, which contractually guaranteed Column's repurchase obligations. ¶¶ 159-163.

Circle Pines

The Circle Pines Property is a residential apartment building with 120 units. ¶ 51. There are 48 units in the West Wing and 72 units in the East Wing. Id. All of the units are located in one, contiguous building with one address. ¶ 6. Most of the building's essential facilities, such as its water line, sprinkler system, and roof can only be accessed through the East Wing. ¶ 63. In fact, access to at least two of the West Wing apartments requires crossing through the East Wing. ¶ 64.

The two wings, however, have separate mortgages owned by separate mortgage-backed security trusts. In early 2006, Column originated a loan secured by the East Wing. ¶ 53. That loan was securitized and sold to a trust, which is not a party to this action. Id. Shortly before the East Wing mortgage was executed, the property owner attempted to execute easements between the East Wing and the West Wing to allow the residents complete access to all of the building's essential facilities and common areas. ¶ 54. These easements, it was later discovered, were defective. ¶¶ 57-58. By the time the defects were discovered, it was too late to remedy the problem because the East Wing mortgage had already been assigned. ¶¶ 61-62.

Nonetheless, on December 28, 2006, Column originated the West Wing Loan. ¶ 73. Nothing was done to provide the West Wing's residents with legal access to the East Wing. This led to serious issues for the West Wing's tenants when the East Wing's owner sent them a cease and desist letter on May 23, 2012, insisting they do not trespass on the East Wing. ¶ 66. Torchlight contends these issues constitute breaches of certain of the MLPA's representations and warranties, listed earlier. Torchlight further contends the West Wing is currently in violation of numerous laws and regulations, such as inadequate resident parking and fire safety systems. ¶ 81. If true, these would be further breaches of the MLPA.

In addition, the West Wing Loan has been in default since June 2009. ¶ 86. On September 27, 2010, a Minnesota state court granted Torchlight summary judgment in a foreclosure proceeding. ¶ 88. However, no foreclosure sale has taken place since no buyer can be found who wants to purchase half of a residential apartment building affected by the issues discussed above. ¶ 89. This, according to Torchlight, is a lack of marketable title, another breach of the MLPA. ¶ 94.

Elgin

[*5]The Elgin Loan was executed on March 5, 2007. ¶ 121. The MLPA warrants that an appraisal must be conducted within one year of origination for an amount equal to at least 80% of the principle amount of $9.55 million. ¶ 122. If no such appraisal is procured or if the appraisal is too low, the Elgin Loan can be put-back. The Elgin Property's appraisal, dated January 9, 2007, opined that the Elgin Property was worth $12.6 million. Dkt. 2 at 445. Column, however, refused to provide the appraiser with a survey or a legal description of the Elgin Property. ¶ 126. The appraiser, therefore, was forced to rely on the county assessor's records. Id. Torchlight alleges that, as a result, the appraiser erroneously thought that the Elgin Property consisted of five parcels, identified by separate parcel numbers. ¶ 125; see Dkt. 2 at 460. This caused the appraiser to overstate the Elgin Property's square footage, leading to a higher appraisal. Moreover, by assuming that the Elgin Property consisted of all five parcels, the appraisal erroneously assumed that the Elgin Property had access to loading docks and the legally required amount of parking, the absence of which are breaches of the MLPA.

Additionally, in June 2010, an engineering report determined that the Elgin Property's roof needed to be replaced at a cost of approximately $1.5 million. ¶ 136. Torchlight contends that the roof's dilapidated condition existed prior to the execution of the MLPA, which would be a further breach. A subsequent appraisal, which took all of these facts into account, valued the Elgin Property at only $3 million. ¶ 139. For these reasons, Torchlight seeks to put-back the Elgin Loan.

Discussion

On a motion to dismiss, the court must accept as true the facts alleged in the complaint as well as all reasonable inferences that may be gleaned from those facts. Amaro v Gani Realty Corp., 60 AD3d 491 (1st Dept 2009); Skillgames, LLC v Brody, 1 AD3d 247, 250 (1st Dept 2003), citing McGill v Parker, 179 AD2d 98, 105 (1992); see also Cron v Harago Fabrics, 91 NY2d 362, 366 (1998). The court is not permitted to assess the merits of the complaint or any of its factual allegations, but may only determine if, assuming the truth of the facts alleged, the complaint states the elements of a legally cognizable cause of action. Skillgames, id., citing Guggenheimer v Ginzburg, 43 NY2d 268, 275 (1977). Deficiencies in the complaint may be remedied by affidavits submitted by the plaintiff. Amaro, 60 NY3d at 491. "However, factual allegations that do not state a viable cause of action, that consist of bare legal conclusions, or that are inherently incredible or clearly contradicted by documentary evidence are not entitled to such consideration." Skillgames, 1 AD3d at 250, citing Caniglia v Chicago Tribune-New York News Syndicate, 204 AD2d 233 (1st Dept 1994). Further, where the defendant seeks to dismiss the complaint based upon documentary evidence, the motion will succeed if "the documentary evidence utterly refutes plaintiff's factual allegations, conclusively establishing a defense as a matter of law." Goshen v Mutual Life Ins. Co. of NY, 98 NY2d 314, 326 (2002) (citation omitted); Leon v Martinez, 84 NY2d 83, 88 (1994).

At the outset, the court notes that Torchlight only asserts breach of contract claims, which are subject to New York's notice pleading standards, not CPLR 3016(b), the Federal Rules of Civil Procedure, or Iqbal and Twombly. Thus, Torchlight need not establish the merits or plausibility of any of the alleged warranty breaches, nor does it need to resolve every ambiguity or question of fact raised by defendants. Indeed, as most court have held, including this court, specificity regarding put-back claims is a matter for discovery, not a motion to dismiss. See Deutsche Alt-A Securities Mortg. Loan Trust, Series 2006-OA1 v DB Structured Prods., Inc., [*6]958 FSupp2d 488, 497 (SDNY 2013), quoting ACE Secs. Corp. Series 2006-SL2 v DB Structured Prods., Inc., 40 Misc 3d 562, 568 (Sup Ct, NY County 2013) ("The Trustee's failure to set forth which of the specific loans are affected by false Representations is not fatal to the Complaint because CPLR 3016(b)'s particularity requirements do not apply to a breach of contract claim"), rev'd on other grounds, 112 AD3d 522 (1st Dept 2013); see also U.S. Bank Nat'l Ass'n v Countrywide Home Loans, Inc., 2013 WL 2356295, at *5 (Sup Ct, NY County 2013) (plaintiff not required to list and provide particularized details as to the specific loans allegedly in breach).

Moreover, the appraisal claim that Judge Sweet found to be properly pled under federal pleading standards surely survives in this court. To the extent that any of the claims lacked federally required specificity in the prior federal actions, such defects are immaterial to this court. That being said, if the documentary evidence utterly refuted an alleged warranty breach, dismissal would be warranted. However, as discussed below, defendants' documentary evidence — at most — raises questions of fact regarding some of the warranties. Indeed, as many of the issues implicate multiple warranty breaches, a technical win for defendants on some of the warranties may prove hollow since all Torchlight needs to compel a put-back is the identification of a single breach for each loan.

Circle Pines

First and foremost is the issue of there being separate mortgages on the East and West Wings.^[FN3] As a result, Torchlight has a worthless foreclosure judgment on the West Wing, since absent access to building essentials like the fire suppression system, no one will buy the property. Indeed, two of the West Wing residents cannot even enter their apartments without trespassing on the East Wing. Essentially, Torchlight claims that the split mortgages "materially interfere[] with the current use of the Mortgaged Property [and] the security intended to be provided by such Mortgage . . . [and] the value of the Mortgaged Property" [representation (xiii)] because the West Wing is not suitable for use by its own tenants, let alone by an owner seeking to sell the property given its unusual and impractical state.

Torchlight argues that this state of affairs further breaches the MLPA, inter alia, because (1) its inability to sell renders it without "practical realization against the Mortgaged Property of the principal benefits of the security" [representation (xxvi)] (2) it lacks "possession of all licenses, permits and authorizations then required for use of the Mortgaged Property" because tenants are forced to trespass on the East Wing [representation (v)] and (3) the West Wing is not "served by public utilities and services generally available in the surrounding community or otherwise appropriate for the use in which the Mortgaged Property is currently being utilized" because it does not even have its own sewer and water systems, which are exclusively controlled by the East Wing [representation (xl)]. A property in violation of numerous zoning and safety laws, that does not provide its tenants with legal access to their apartments and that cannot be sold is precisely the sort of scenario that the put-back mechanism was designed for. Again, as this is a motion to dismiss, the court will not address each of defendants' factual arguments, [*7]which, at most, could warrant dismissal of certain duplicative warranty claims.

For instance, defendants argue that the West Wing's lack of a fire prevention system(i.e. sprinklers) does not violate representation (li), which requires compliance with zoning laws, because the Minnesota Building Code (the MBC) purportedly has no such requirement. Defendants are wrong. Section 1305.0903 of the MBC explicitly requires automatic sprinkler systems. Defendants seek to avoid this obvious truth by averring that a building code is not a zoning law. This is also wrong. The local zoning laws expressly incorporate the requirements of the MBC. In any event, irrespective of the zoning laws, the lack of a fire safety system, roof access, a sewer system, or even legal access to all of the apartments clearly precludes "practical realization" of having a mortgage security — namely, that someone might be willing to buy the property. No reasonable buyer or tenant, knowing such facts, would pay market price for such conditions. The technical right of foreclosure is an illusory comfort absent the ability to achieve the real point of foreclosure — money. The very point of having a put-back right is to make warranty defects the seller's problem, not the buyer's.

B. Elgin

As noted earlier, the federal court held that Torchlight's allegations regarding the Elgin appraisal stated a claim for breach of representations (xxix) and (xl). See Torchlight, 2012 WL 3065929, at *7-9. The court agrees.^[FN4] In addition to the appraisal issue, Torchlight alleges warranty breaches relating, inter alia, to roof damage and lack of access to loading docks. In opposition, defendants raise questions of fact, such as whether the roof damage occurred after the MLPA was executed and whether Torchlight does indeed have access to the loading docks. At oral argument, the parties confirmed that they do not know the answers to these questions. See Dkt. 37 (transcript) at 24. Discovery is clearly necessary. Again, there is no need to address every permutation of warranty breaches when a single breach entitles Torchlight to put-back the Elgin Loan. Accordingly, it is

ORDERED that the motion to dismiss by defendants Column Financial, Inc. and Credit Suisse (USA), Inc. is denied; and it is further

ORDERED that the parties are to appear in Part 54, Supreme Court, New York County, 60 Centre Street, Room 228, New York, NY, for a preliminary conference on April 1, 2014 at 10:30 in the forenoon.

Dated: March 14, 2014ENTER:

__________________________

J.S.C.