Sand Canyon Complaint

8/2/2019 Sand Canyon Complaint

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ILED: NEW YORK COUNTY CLERK 02/22/20121CEF DOC. NO.1

SUPREME COURT OF THE STATE OF NEW YORKCOUNTY OF NEW YORK

S AND CANYON COR PORATION,Plaintiff,

- again st-AME RIC AN HOME MOR TGAG E SER VIC IN G, IN C.,

Defendant.

T o th e a bo ve-n amed D efe nd an t:

INDEX NO. 650504/RECEIVED NYSCEF: 02/22/

Index N o. /12Da te Pu rchased: 2122 /12P la in tiff d esig na tes N ew YorkC ounty as the place of trial.The basis of the venue is CPLR503 (a)SUMMONS

Y ou are hereby summoned to answ er the com plaint in this action and to serve acopy of your answ er, or, if the com plaint is not served w ith this summons, to serve a notice ofappearance, on the Plaintiffs A ttorneys w ithin 20 days after the service of this summ ons, exclu-sive of the day of service (or w ithin 30 days after the service is com plete if this summons is notpersonally delivered to you w ithin the State of N ew Y ork); and in case of your failure to appearor answ er, judgm ent w ill be taken against you by default for the relief dem anded in the com -plaint.Dated: New York, New YorkFebrua ry 22 ,2012

BY:--i~~~ ......--fr-~"""""::~ _ ____;::::" '_J el urtzbergv an S ad eg hiCh ristin e Mo tt8 0 P in e S treetNew York, New York 10005T el: (2 12) 7 01 -31 20Email: [email protected] tto rn eys fo r P la in tiff S an d C an yo n C orp ora tio n
mailto:[email protected]:[email protected]


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De fendant's Addre ss :Am erican H om e Mortg ag e S erv icin g, Inc.1525 S outh B elt Line R oadC op pell, T ex as, 7 50 19c/o B rian V . O tero, E sq.Hunton & William s L LP200 Park A v enueNew York, New York 10166


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SUPREME COURT OF THE STATE OF NEW YORKCOUNTY OF NEW YORK

Plaintiff, Index No. _SAND CANYON COR PORATION,

- against-AME RIC AN HOME MOR TGAG E SE RV IC IN G, IN C.,

Defendant.

COMPLAINT

Plaintiff Sand Canyon Corporation ("Sand Canyon"), by its undersignedattorneys, as and for its complaint for breach of contract, breach of the implied covenant of goodfaith and fair dealing, declaratory judgment, and injunctive relief against American HomeMortgage Servicing, Inc. ("ARMSI"), alleges as follows:

NATURE OF THE ACfION

1. This action arises out of defendant AHMSI's knowing facilitation of third-party claims against plaintiff Sand Canyon in direct violation of AHMSI's contractual obligationsto cooperate with Sand Canyon in Sand Canyon's defense of such claims.

2. More specifically, AHMSI has failed to abide by the terms of a CooperationAgreement (attached as Exhibit 1) that it entered into with Sand Canyon as part of its purchase ofSand Canyon's mortgage loan servicing portfolio in 2008. The entire purpose of the CooperationAgreement was to ensure that ARMSI and Sand Canyon would act as allies rather than adver-saries in the management and defense of certain liabilities that were to be retained by Sand Can-yon after AHMSI's purchase of the mortgage loan servicing portfolio - namely, those liabilitiesthat are based on allegations concerning Sand Canyon's pre-sale conduct (the "Retained Liabili-ties"). Sand Canyon bargained for and obtained AHMSI's cooperation in connection with Sand


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Canyon's defense of the Retained Liabilities so that Sand Canyon would not be prejudiced by thefact that control of loan servicing and loan information that related to such claims was no longerin the hands of the potentially liable party.

3. Under the Cooperation Agreement, AHMSI must, among other things,(i) provide Sand Canyon with all reasonable cooperation and assistance requested by Sand Can-yon "in connection with" all pending claims or threatened claims that are based on allegationsconcerning Sand Canyon's pre-sale conduct; (ii) refrain from disclosing confidential loan infor-mation to third parties except as required by law; and (iii) allow Sand Canyon to control the de-fense of repurchase claims that are based on allegations concerning Sand Canyon's pre-sale con-duct.

4. In violation of these provisions of the Cooperation Agreement, ARMSI hasbeen providing electronic copies of loan files containing borrowers' personal and confidentialfinancial and identity information to certain third parties (e.g., Trustees and insurers who are in-volved in the securitization of the loans), even though the Pooling and Servicing Agreements("PSAs") that Sand Canyon negotiated with those third parties limit those third-parties' rights toreview the information and do not entitle them to receive unfettered access to the informationelectronically. Instead, under the PSAs, the third parties are typically entitled only to get access tothe information "during ordinary business hours," and, in most cases, "at the place of business ofthe Servicer."

5. The third parties making these information requests are doing so as part oftheir efforts either to assert new claims or demands to repurchase loans or to strengthen existingclaims or repurchase requests against Sand Canyon that are based on Sand Canyon's pre-sale con-

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duct. AHMSI is aware that the information requests are part of an ongoing threat to assert claimsor repurchase requests against Sand Canyon or to buttress existing claims or repurchase requestsagainst Sand Canyon.

6. Sand Canyon has repeatedly requested that AHMSI stop providing the in-formation to these third parties electronically and instead honor and enforce the limited accessrights Sand Canyon negotiated, and the third parties accepted, as part of the PSAs. AHMSI hasrefused to do so.

7. AHMSI's conduct has resulted in a very significant increase in claims madeagainst Sand Canyon, the overwhelming majority of which are without merit. Inturn, this hasdramatically increased Sand Canyon's defense costs and potential liability and has effectivelydeprived Sand Canyon of its right to control the defense of claims and threatened claims that con-stitute Retained Liabilities.

8. By breaching its contractual obligations, AHMSI has caused Sand Canyonsubstantial hann that is ongoing, severe, and irreparable.

PARTIES

9. Plaintiff Sand Canyon Corporation is a California corporation with its prin-cipal office at 7595 Irvine Center Drive, Suite 100, Irvine. California, 92618. Sand Canyon, for-merly known as Option One Mortgage Corporation ("Option One"), originated and serviced resi-dential mortgage loans until 2008. Option One ceased loan originations in late 2007 and sold itsloan servicing portfolio to AHMSI in 2008.

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10. Defendant American Home Mortgage Servicing, Inc. is a Delaware corpo-ration with its principal office at 1525 South Belt Line Road, Coppell, Texas, 75019, and servic-ing operations in Irvine, California; Jacksonville, Florida; and Pune, India. AHMSI is a residen-tial mortgage servicer that services mortgage loans held by trusts for the benefit of investors or"certificate holders."

.RJRISDICTION. VENUE ANDAPPLICABLE LAW

11. This Court has personal jurisdiction over both parties pursuant to CPLR302(a)(I) because the parties negotiated the Cooperation Agreement in the State of New York,and this action arises out of that transaction. In addition, AHMSI expressly consented to the juris-diction of this Court over any claim related directly or indirectly to the Cooperation Agreement.Section 5.6 the Cooperation Agreement provides that each party "consents to submit itself to thepersonal jurisdiction of the courts of the State of New York ... in the event that any dispute arisesout of this Agreement or any of the transactions contemplated by this Agreement."

12. Venue is proper in this Court pursuant to CPLR 503(a), as neither party is aresident of the State of New York.

13. This dispute is governed by New York law pursuant to Section 5.5 of theCooperation Agreement, which provides that "[tjhis Agreement will be governed by, and con-strued and enforced in accordance with, the laws of the State of New York, without regard to theconflict of laws rules thereof."


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BACKGROUND

Sand Canyon's Former Mortgage Servicing Business and Its Sale to AHMSI

14. Until it ceased operations and sold its servicing portfolio to AHMSI in2008, Sand Canyon (then Option One) was engaged in the business of originating and servicingresidential mortgage loans. The majority of loans originated by Option One were sold throughsecuritizations, in which pools of loans were transferred to a trust as collateral for residentialmortgage-backed securities C~RMBSU)that were sold to investors.

15. Generally, when Option One sold loans through securitizations, it retainedthe servicing rights for those loans. The sale of loans to a trust and retention of servicing rightswas accomplished through a Pooling and Servicing Agreement, also known as a "PSA." PSAs setforth the respective rights and obligations of various parties to the securitization transaction, in-cluding the servicer and the Trustee, on behalf of the trust.

16. Each securitization of Option One loans was governed by its own PSA.The PSAs governing each securitization are all different but all generally govern the ongoingmaintenance and restrictions to access to the loan files and servicing data of each transaction.

17. Loan files contain personal and confidential financial and identity infor-mation provided by borrowers to enable originators to underwrite loans. The access restrictionspertaining to these loan files embedded in the PSAs provide reasonable, legally-authorized accessto the information by all parties, while protecting borrowers' personal and confidential financialinformation from being provided in an easily copied electronic format to numerous different par-ties and providing an effective limitation on potentially meritless claims. These protections wereagreed to by all parties to the PSAs.

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18. These protections are addressed in the PSAs by restricting access to loanfiles with regard to time, place, and media. Although individual PSAs to which Option One was aparty vary in their specifics, each PSA provides that the loan files and loan servicing data will bemaintained by the servicer and that access by named parties to the PSAs, usually including Trus-tees, insurers and investors, is limited by the terms of the PSA.

19. These parties are granted these limited access rights in order to determinewhether to request that the mortgage originator repurchase certain mortgage loans from the poolfor various enumerated reasons, such as early payment defaults or certain breaches of representa-tions or warranties that materially and adversely affect the value ofa loan or an insurer's interestin the loan. Mortgage originators are generally not obligated to repurchase non-performing loansunless they fall into one of the enumerated reasons set forth in the PSA.

20. The limitations embedded in these inspection provisions-usually, that in-spection shall take place "during normal business hours," and in most cases "at the offices of theServicer"-were intended to provide reasonable limits on access to the information that have beenagreed to by all parties involved.

21. The overwhelming majority of the PSAs limit the access of Trustees, insur-ers, and/or investors to loan files to reasonable requests during normal business hours at the offic-es of the Servicer. To take just one example, Section 3.22 of the PSA for the Option One Mort-gage Loan Trust 2007-6 ("OOMLT 2007-6") provides, in relevant part:

[A]ccess to the documentation regarding the Mortgage Loans will be provided toany Certificateholder or Certificate Owner, the Trustee, the NIMS Insurer and toany Person identified to the Servicer as a prospective transferee of a Certificate,upon reasonable request during normal business hours at the offices of the Ser-vicer designated by it at the expense of the Person requesting such access.


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PSA for OOMLT 2007~6 (attached as Exhibit 2 without accompanying exhibits) at 3.22; s ee a lso PSA for Soundview Home Loan Trust 2007~OPTI (attached as Exhibit 3without accompanying exhibits) at 3.22 (substantially similar provision).

22. The remaining PSAs limit loan file access by Trustees, insurers, andlor in-vestors to normal business hours - making clear that unfettered, electronic access is not to begranted to these parties. To take just one example of this type of agreement, Section 6.05 of thePSA for Asset Backed Securities Corporation Home Equity Loan Trust, Series OOMC 2005~HE6("ABSC 2005~HE6") provides in relevant part:

The Servicer shall afford ... the Depositor, the Seller, CIFG and the Trustee, up-on reasonable notice, during normal business hours, access to all records main-tained by the Servicer ... in respect of the Servicer's rights and obligations here-under and access to officers of the Servicer ... responsible for such obligations.PSA for ABSC 2005~HE6 (attached as Exhibit 4 without accompanying exhibits) at 6.05; se ealso PSA for Merrill Lynch Mortgage Investors Trust, Mortgage Loan Asset-Backed Certifi-cates, Series 2007-HE2 (attached as Exhibit 5 without accompanying exhibits) at 3.16 ("Uponreasonable advance notice to the applicable Servicer and during regular business hours, the Trus-tee, the Securities Administrator and the Master Servicer shall have the right to inspect and ex-amine the books and records of a Servicer with respect to the Mortgage Loans"); id . at 10.09.

23. None of the PSAs at issue provides for Trustees, insurers, andlor investorsto receive electronic copies of loan files that may be reviewed by them at any time and in anylocation.

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The SlIle of Option One's Serricing Business to ARMS]

24. Option One ceased originating loans at the end of 2007 and sold its loan

servicing portfolio to AHMSI pursuant to a Purchase Agreement dated March 17, 2008 (attachedas Exhibit 6 without accompanying exhibits), which became effective April 30,2008.

25. The sale occurred at a time when the troubles of the mortgage industry werewell known and potential liabilities were a primary concern. Accordingly, a key aspect of thePurchase Agreement was the allocation of potential liabilities between those assumed by AHMSI("Assumed Liabilities") and those retained by Sand Canyon (as noted above, the "Retained Liabil-ities"). The scope of the Retained Liabilities was extensively negotiated. The parties ultimatelyagreed that Sand Canyon would retain liability and indemnify AHMSI for certain losses arisingout of pre-sale activities, including certain repurchase requests that were based on allegationsconcerning Option One's pre-sale conduct.

26. However, it was a material and critical aspect of the transaction to SandCanyon that this sale would not increase its potential exposure to Retained Liabilities with respectto loans serviced by AHMSI. The sale had the potential to subject Sand Canyon to significantlyincreased risk unless Sand Canyon also retained the ability to control the defense of claims and toenforce the rights it had negotiated in the PSAs. For these reasons, Option One and AHMSI en-tered into a Cooperation Agreement, expressly setting forth AHMSl's duty to cooperate in dealingwith third-party disputes or threatened disputes related to Retained Liabilities.

AHMSI's Brellches of the Cooperstion Agreement

27. Despite AHMSI's express promises in the Cooperation Agreement to coop-erate in handling third-party disputes and threatened disputes and the express limitations on access

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rig hts set fo rth in th e P SA s, AHMS I is now p ro vid ing electro nic co pies o f con fid en tial m ortga gelo an in fo rmatio n to th ird p arties, th ereb y fa cilita tin g th ose th ird p artie s' a ssertio ns o f rep urch aseclaim s against Sand C anyon - the precise opposite effect of that contem plated by the term s andin te nt o f th e C oo pera tio n A greemen t.

28. B y providing these third parties w ith unfettered electronic access to the loanin fo rm atio n, AHMS I is p ro vid in g th ese th ird p arties w ith m ore access to tha t lo an in fo rm atio nthan those parties bargained for w hen negotiating the relevant P SA s w ith O ption O ne. U nder therelev an t P SA s, th e third p arties are ty pically en titled o nly to " access" to th e d ocumen ts "d urin gn orm al b usin ess ho urs," an d, in m ost in sta nces, "a t the offices o f th e S erv icer."

29. A lthough Sand Canyon has repeatedly asked ARM SI to provide these third-p arties w ith a cce ss to th is in fo rmatio n su bject to th e reason ab le restriction s p ro vided fo r in thePSAs, AHM SI has not done so. M oreover, AHM SI has inform ed Sand Canyon that it intends tocontinue to p ro vid e a ccess to th e lo an in fo rma tio n to th ese th ird p arties electro nica lly , u nless acourt orders it not to do so.

30. AHM Srs refusal to abide by Sand Canyon's request to require third partiesto abide by the lim itations on access that they negotiated w ith Sand C anyon violates both the letterand the spirit of the C ooperation A greem ent. A HMSI can engage in this irresponsible conductw ith ou t fea r o f n eg ativ e b usin ess co nseq uen ces only because S an d C an yo n ag reed to retain certainlia bilities in co nn ectio n w ith th e m ortg ag e lo an s. S an d C an yon en tered in to th e C oop era tio nA greem ent p recisely to prevent th is so rt o f con du ct.

31. The third parties requesting this loan inform ation are doing so as part of athreat to assert new repurchase requests or other claim s or as part of their effort to buttress exist-

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ing repurchase requests or claims against Sand Canyon. The overwhelming majority of the repur-chase requests and other claims asserted by these third parties against Sand Canyon are withoutmerit.

32. The third parties making the information requests are being advised by orare sharing the information obtained from the requests with a plaintiffs' law firm that routinelybrings claims or repurchase requests against mortgage originators, including Sand Canyon.

33. AHMSI has responded to these information requests by providing electron-

ic copies of loan files and large volumes of servicing data directly to the counterparties. None ofthe relevant PSAs provides for this sort of unfettered access.

34. AHMSI's delivery of disks loaded with mortgage loan information is a di-rect violation of Sections 2.1 and 2.1(a) of the Cooperation Agreement, which together providethat:

2 .1 Acces s to in forma tion; General Cooperation. From and after the ClosingDate, if and for as long as any Covered Action, Specified Mortgage Loan Claimor Repurchase Request is pending against either Party (such Party, the 'ContestingParty' [here, Sand Canyon]):(a) The non-contesting Party (the "Non-Contesting Party") [here, AHMSI] will provideall reasonable cooperation and assistance as may be requested by the Contesting Party[here, Sand Canyon] in connection with such Covered Action." Cooperation Agreement(Exhibit 1) at 2.1, 2.1(a).

35. Section 2.1 (a) applies to AHMSI then, as long as a "Covered Action, Speci-

tied Mortgage Loan Claim, or Repurchase Request is pending" against Sand Canyon.


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36. A "Covered Action" is defined by the Cooperation Agreement as, in rele-vant part, "(i) any Action Irelating to the Business [of servicing residential mortgage loans],(ii) any Action relating to the Mortgage Loan origination business of Sellers, or (iii) any SpecifiedMortgage Loan Claim, in each case, that gives rise to Assumed Liabilities or Retained Liabilities."Cooperation Agreement (Exhibit 1) at 1.1.

37. A "Specified Mortgage Loan Claim" is defined in the Cooperation Agree-ment as "any complaint, asserted claim or other dispute ra ise d, m a de o r th re ate ne d by any Gov-ernmental Authority or private party (including individual borrowers, not-for-profit organizations,and any plaintiffs' counsel) relating to the origination or servicing of any Mortgage Loans that areserviced by the Business as of the Closing Date.,,2 Id (emphasis added).

38. The information requests are, in many instances, made in connection withexisting repurchase requests or other claims that have been asserted against Sand Canyon relatingto the origination or servicing of mortgage loans that were serviced by Sand Canyon as of the dateof the sale. In such instances, a "Covered Action, Specified Mortgage Loan Claim, or RepurchaseRequest" is clearly pending against Sand Canyon because a "dispute" has been "raised, made, or

1 The P urchase A greem ent betw een Sand C anyon and AHMSI defines "A ction" as "any civil, crim inal,o r a dm in is tra tiv e c la im , d emand , a ctio n, s uit, p ro ce ed in g (pubfic o r p riv ate ), in ve stig atio n, h ea r-in g, litig atio n, p ro se cu tio n, a rb itra tio n, m ed ia tio n, SEC 'We lls ' p ro ce ss o r a ud it b y o r b efo re a nyG overnmental A uth ority ." P urcha se A greem en t (E xh ibit 6 ) at 1 3.0 1. T he C ooperation A gree-men t a do pts th ose d efin itio ns b y re fe re nc e. Se e Coop er atio n Ag re ement (Exhib it 1) a t Reci ta l B.

2 In essence, the claim or threatened claim m ust relate to m ortgage loans that w ere serviced by S and C an-yon as of the date of the sale of its serv ic in g bu sin ess to AHMS I. Se e Purc ha se Agre emen t (E x-hibit 6) at R ecitals and 1 3.0 1 (d efin in g th e te rm s "Mortg ag e L oa ns," " Busin ess," a nd "Clo sin gDate.").


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threatened" by a "private party" relating to the origination or servicing of mortgage loans thatwere part of Option One's servicing portfolio at the time of the sale.

39. In other instances, the information requests are made before an actual re-purchase request or other claim has been formally asserted against Sand Canyon. In those in-stances, however, a "Specified Mortgage Loan Claim" is still pending against Sand Canyon be-cause the information requests are part of a process that is in place for one purpose: to threaten tobring as many claims or raise as many disputes with Sand Canyon as possible. As such, a "Speci-fied Mortgage Loan Claim" is pending because a "dispute" has been "threatened" by a "privateparty" relating to the origination or servicing of mortgage loans that were part of Option One'sservicing portfolio at the time of the sale.

40. Indeed, the very purpose of the information requests is to maximize thenumber of such claims asserted against Sand Canyon, and the parties making the informationrequests have made that perfectly clear to both AHMSI and Sand Canyon. In many instances, thethird parties have made clear that the requests are being coordinated by plaintiffs' law firms whohave been retained to bring claims against mortgage originators. In other instances, the third par-ties have even noted the urgency of the information requests in light of the fact that the statute oflimitations on claims is about to run. To the best of Sand Canyon's knowledge, every informationrequest made to ARMS] by these third parties to date bas ultimately resulted in the assertion ofclaims or repurchase requests against Sand Canyon by the tllird parties. Thus, the reality is thatthese information requests are part of a threat to bring repurchase requests and other claimsagainst Sand Canyon.


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41. As a result, under Section 2.1 (a) of the Cooperation Agreement, AHMSI isfully obligated to "provide all reasonable cooperation and assistance" that Sand Canyon requests"in connection with" these "Covered Actions" - i.e., with these asserted or threatened claims.Cooperation Agreement (Exhibit 1) at 2.1 (a).

42. Sand Canyon's request that ARMSI provide access to mortgage loan datato third parties in a manner consistent with the bargained-for restrictions set forth in the terms ofthe relevant PSAs is reasonable. Under Section 2.1 (a) of the Cooperation Agreement, AHMSImust comply with this reasonable request.

43. AHMSI has suggested to Sand Canyon that it delivers the loan informationto third parties electronically because such deliveries are "Accepted Servicing Practices" thatAHMSI is obligated to follow under the provisions of the relevant PSAs. See , e .g ., PSA forASBe 2005~HE6 (Exhibit 5) at 3.01, which requires the Servicer to "service and administer theMortgage Loans ... in accordance with the terms of this Agreement, the Mortgage Loans, andAccepted Servicing Practices .... "

44. AHMSl's suggested interpretation of the PSAs is wrong for several rea-sons. First, there is no "accepted servicing practice" regarding the delivery of loan informationelectronically or in any particular manner. Rather, the practice varies, depending upon the termsof the contract governing the transaction at issue. Second, AHMSl's interpretation ignores theremaining key directive of that portion of Section 3.01, which requires that the Servicer servicethe mortgage loans "in accordance with the terms of this Agreement." Id . Because the provisionof the PSAs that limit access to loan information was specifically bargained for, the limitations on


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access are specific "terms of [the] Agreement" that would trump the general "Accepted ServicingPractices" in this case, even if there were potential tension between the two.

45. Even if a third parties' information requests did not trigger the cooperationobligations of Section 2.1(a) under its express terms, they nevertheless must be read to do so un-der the covenant of good faith and fair dealing, which is implied in all contracts under New Yorklaw.

46. The implied covenant of good faith and fair dealing prohibits either party to

a contract from engaging in conduct that purposefully undermines the other party's ability to reapthe benefits of the bargained-for exchange.

47. As noted above, the purpose of the Cooperation Agreement was to ensureAHMSPs cooperation with Sand Canyon in defending against third-party claims that were SandCanyon's responsibility post-sale as "Retained Liabilities." This is especially true with regard torepurchase requests, which are "Retained Liabilities."

48. Article IV of the Cooperation Agreement provides Sand Canyon with ro-bust notice and control rights from the inception of any repurchase request, including "sole re-sponsibility for and control of the management of" any such request. Cooperation Agreement(Exhibit 1) at 4.2. Because there is no way to take back the mortgage loan data once it is givento third parties, AHMSI's conduct renders the provisions of Article IV practically null: AHMSI ineffect takes control of the repurchase request from its inception, leaving Sand Canyon to deal withthe consequences.


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49. By providing to third parties unfettered electronic access to loan files andservicing records, AHMSI has also facilitated scores of meritless repurchase requests against SandCanyon and has not assisted in defending against such claims. If AHMSI were permitted to pro-ceed in its current conduct, the Cooperation Agreement as a whole would lose its value to SandCanyon. In short, AHMSI may not, consistent with a Cooperation Agreement that is designed toensure that AHMSI cooperates with Sand Canyon in its defense of certain claims, facilitate thebringing of those very claims. That is, however, precisely what ARMSI has been doing andthreatens to continue doing.

50. Moreover, even if - as AHMSI has incorrectly suggested - the literal lan-guage of Section 2.1(a) of the Cooperation Agreement does not require AHMSI to cooperate withSand Canyon in connection with information requests that are made before a repurchase request isactually made or a claim is actually asserted against Sand Canyon, the implied covenant of goodfaith and fair dealing would require AHMSI to cooperate with Sand Canyon's reasonable requests

in connection with those information requests.51. AHMSI's refusal to limit the disclosure of confidential loan information to

third parties in the manner provided for in the relevant PSAs has the inarguable effect of facilitat-ing claims against Sand Canyon - precisely the opposite of the purpose of the contract.

52. AHMSI cannot comply with the Cooperation Agreement in good faith byproviding more access to information to Sand Canyon's potential adversaries than those potentialadversaries are entitled to under their agreements with Sand Canyon in cases where, as here,AHMSI knows that the information requests are made for the purpose of finding and asserting asmany potential claims against Sand Canyon as possible.


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53. AHMSrs conduct also independently violates provisions of the Coopera-tion Agreement concerning confidentiality. The information included on the disks that AHMSIhas been distributing includes confidential loan information and confidential personal financialinformation of borrowers that Sand Canyon expected would be maintained in confidence byAHMSI, subject only to the previously negotiated, limited access rights provided in the PSAs.

54. The Cooperation Agreement requires that all Information, which is definedto include the loan files and data, se e Cooperation Agreement (Exhibit 1) at 1.1, be kept confi-dential by AHMSI:

[T]he Parties will hold, and will use commercially reasonable efforts to causetheir respective Representatives to hold, in confidence, all Information providedhereunder, except (as) as required by applicable Law or (b) to the extent that suchInformation can be shown to have been (i) in the public domain prior to the Clos-ing, (ii) in the public domain at or after the Closing, through no fault of such Partyor its Representatives, or (iii) later lawfully acquired by the other Party or theirAffiliates or Representatives. The obligation of the Parties to hold the Infor-mation in confidence after the closing will be satisfied if such Party exercises thesame care with respect to the Information as it would take to preserve the confi-dentiality of its own similar Information in the ordinary course of business. Thissection 2.4 will not in any way prohibit or limit any use or disclosure of Infor-mation provided hereunder in connection with any Covered Action or SpecifiedMortgage Loan Claim.

Cooperation Agreement (Exhibit 1) at 2.4. By continuing to deliver the mortgage loandata in a manner that exceeds the requirements of the applicable contracts, AHMSI is inbreach of Section 2.4 of the Cooperation Agreement.

Sand C anyon's Su bstantial and O ngoing Inju ries

55. AHMSI has refused to comply with Sand Canyon's reasonable requests thatitcease delivery of loan information electronically to Trustees, investors, and their representa-ti ves. The release of this confidential information is permanent and cannot be undone or repaired.Accordingly, AHMSI's disclosure of confidential loan information to third parties beyond the

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ag reed -u pon access rights set forth in th e app licable P SA s h as caused u nquan tifiab le and irrep ara-b le h arm to Sand Canyon. This conduct has also caused irreparable harm to Sand Canyon byu nderm ining S and C anyo n's righ t to co ntrol the defense of these claim s and repu rch ase requ ests.It has further dam aged Sand C anyon by generating an onslaught of repurchase requests and otherclaim s against Sand C anyon that are w ithout m erit at a rate of approxim ately several thousand am onth. T his has required Sand C anyon to hire additional staff to deal w ith these m eritless repur-chase reques ts .

56. As previously noted, AHM SI's deliveries of loan inform ation to third par-ties electro nically in d isregard o f S and C anyo n's repeated requ ests to cease such actio ns h av ea lrea dy fa cilita ted a v ery su bsta ntia l in crea se in the number of rep urchase req uests and oth er third-party claim s filed against Sand Canyon. M ost of these repurchase requests have been w ithoutm erit. B y increasing the num ber of m eritless claim s brought against Sand C anyon, A HMSI hasalso dam aged Sand Canyon by unnecessarily increasing its defense costs in connection w ith re-

pur chas e r eques ts .57. At the time they executed the Cooperation Agreement, Sand Canyon and

AHMSI alread y recog nized that th e coop eration obligations w ere fu ndam entally im po rtant andthat there w ould be no adequate rem edy at law for breaches of A HMSI's cooperation obligations.A s a result, Section 5.6 of the Cooperation A greem ent provides:

The Parties agree that irreparable dam age w ould occur in the event that any of theprovisions of this A greem ent w ere no t p erform ed in accordance w ith their specif-ic term s or w ere otherw ise breached. It is accordingly agreed that the Parties w illbe entitled to an in jun ctio n or in jun ction s to prevent breach es of this A greem entand to en fo rce specifically the term s and pro vision s o f this A greem ent in th ecourts of the State of New Y ork, this being in addition to any other rem edy towhich such Party is entitled at law or in equity. [ ... ~


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Cooperation Agreement (Exhibit 1) at 5.6. Accordingly, under the terms of the CooperationAgreement itself, Sand Canyon is entitled to seek injunctive relief and specific performance ofthe terms of the Cooperation Agreement in this Court.

58. AHMSI has agreed to refrain from providing third parties with loan infor-mation electronically until there is a court ruling clarifying the parties' rights and obligations un-der the relevant contracts. Based on this representation, Sand Canyon is not requesting prelimi-nary injunctive relief.

CAUSES OF ACTIONCount I(Breach of Contract)

59. Plaintiff repeats and realleges the allegations in paragraphs 1 through 58, asif fully set forth herein.

60. The Cooperation Agreement is a valid, binding, and enforceable contractbetween Sand Canyon and AHMSI.

61. Sand Canyon has performed and continues to perform all conditions, duties,obligations, and promises required on its part to be performed in accordance with the terms andconditions of the Cooperation Agreement.

62. AHMSI has failed to perform its obligations under the Cooperation Agree-ment and therefore has breached the Cooperation Agreement. The unexcused, unjustified, andunequivocal failure of AHMSI to perform its obligations under the Cooperation Agreement is amaterial breach of the parties' agreement.


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63. By providing to third parties over Sand Canyon's objections loan and ser-vicing information electronically, AHMSI has acted in derogation of the loan file access provi-sions of the PSAs, thereby breaching the promise to "provide all reasonable cooperation and assis-tance as may be requested" by Sand Canyon inconnection with a "Covered Action," as that termis defined by the Cooperation Agreement. Cooperation Agreement (Exhibit 1) at 2.1(a).

64. By providing to third parties over Sand Canyon's objections loan and ser-vicing information electronically, AHMSI has acted in derogation of the loan file access provi-sions of the PSAs, thereby breaching the promise to "hold, and [] use commercially reasonableefforts to cause their respective Representatives to hold, in confidence, all Information ... except(a) as required by applicable Law." Cooperation Agreement (Exhibit 1) at 2.4.

65. As a result of these breaches of the Cooperation Agreement, Sand Canyonhas and continues to suffer irreparable injury for which it has no remedy at law.

66. As a result of these breaches of the Cooperation Agreement, Sand Canyonhas also been damaged by being forced to defend a large number of meritless repurchase requestsand claims that it would not otherwise have to defend.

Count II(Breach of Implied Covenant of Good Faith and Fair Dealing)67. Plaintiff repeats and realleges the allegations in paragraphs 1 through 66, as

if fully set forth herein. This cause of action is asserted in the alternative to Count I.

68. The Cooperation Agreement between Sand Canyon and AHMSI, like allcontracts governed by New York law, contains an implied covenant of good faith and fair dealing.


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69. The im plied covenant of good faith and fair dealing requires AHM SI to per-form in good faith under the C ooperation A greem ent and to conduct itself at all tim es in a m annerso as to allow S and C anyon to enjoy the benefits of the C ooperation A greem ent.

70. Sand C anyon has perform ed and continues to perform all conditions, cove-nants, and prom ises required on its part to be perform ed in accordance w ith the term s and condi-tions of the C ooperation A greem ent, including but not lim ited to the im plied covenant of goodfa ith a nd fa ir d ea lin g.

71. AHM SI breached the implied covenant of good faith and fair dealing by, aso utlined ab ov e, p ro vid in g th ird p arties' m ore access to loa n in fo rm atio n tha n th ey are co ntra ctu al-ly entitled to a nd th ereb y (I) h elpin g th ose p arties m axim ize th e n umber o f cla im s th ey b ringaga in st S an d C any on ; (2) u nd erm in in g S an d C an yo n's ab ility to co ntrol the d efen se o f rep urch asereq ue sts; a nd (3) relea sin g con fid ential bo rrow er in fo rm atio n in a m an ner th at m akes it easier todisclo se to th ird p arties. AHMSI's a ctio ns run co unter to th e very p urp ose o f th e C oo peratio nA greem en t an d effectiv ely depriv e S and C an yon o f th e b en efits o f the C oo peratio n A greem en t.

72. In taking these actions, A HMSI sought to w ithhold the benefits of the C o-op era tio n A greem en t from S and C an yon .

73. As a result of this breach of the im plied covenant of good faith and fairdealing, Sand Canyon has and continues to suffer irreparable injury for w hich it has no rem edy atlaw.


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74. As a result of these breaches of the Cooperation Agreement, Sand Canyonhas also been damaged by being forced to defend a large number of meritless Repurchase Re-quests that it would not otherwise have to defend.

Count III(Declaratory Judgment)75. Plaintiff repeats and real leges the allegations in paragraphs 1through 74, as

if fully set forth herein.

76. AHMSI and Sand Canyon have conflicting interpretations of the parties'obligations and responsibilities under the Cooperation Agreement and the PSAs. Sand Canyonmaintains that AHMSI is obligated pursuant to the Cooperation Agreement to provide all reason a-ble cooperation and assistance as may be requested by Sand Canyon in connection with mortgageloan claims, including the request to cease data delivery practices that facilitate the bringing oflarge numbers of meritless third-party claims against Sand Canyon and the distribution of confi-dential borrower information to third parties. ARMSI disagrees.

77. An actual and justiciable controversy exists between the parties about theirobligations and responsibilities under the Cooperation Agreement and the PSAs. A declaratoryjudgment confirming AHMSl's breach of the Cooperation Agreement is appropriate under CPLR3001.

Count IV(Injunctive Relief and Specific Performance)78. Plaintiff repeats and realleges the allegations in paragraphs 1 through 77, as

iffully set forth herein.


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79. As set forth in Counts I and II supra, AHMSI has failed to perform its obli-gations under the Cooperation Agreement and therefore has breached the Cooperation Agreement.Additionally, AHMSI has deprived Sand Canyon of the right to receive the benefits of the Coop-eration Agreement and has therefore breached its implied covenant of good faith and fair dealing.There is a strong likelihood that Sand Canyon will succeed on its claims for breach of contract andbreach of the implied covenant of good faith and fair dealing.

80. AHMSI's breaches of contract and of the implied covenant of good faithand fair dealing have caused and continue to cause Sand Canyon damages, including without limi-tation irreparable harm for which there is no adequate remedy at law. The parties have expresslyagreed that breaches of the Cooperation Agreement constitute irreparable injury justifying thegranting of injunctive relief in the courts of the State of New York. See Section 5.6 of the Coop-eration Agreement.

81. There is no adequate remedy at law to compensate Sand Canyon for the ir-reparable harm it has suffered and will continue to suffer through AHMSl's ongoing facilitation ofmeritless third-party disputes that continue to place an undue burden on Sand Canyon as formermortgage servicer and which have permanently and irrevocably released Sand Canyon's confiden-tial information.

82. These harms to Sand Canyon would be resolved if the Court were to issueinjunctive relief and order AHMSI to specifically perform its obligations under the CooperationAgreement.

83. The balance of the equities strongly favors issuing injunctive relief in favorof Sand Canyon as the benefit of such a remedy as to Sand Canyon far outweighs any inconven-


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ience to AHMSI and there is no ~egitimate third-party or public interest impacted by the issuanceof such relief.

PRAYER FO R RELIEF

WHEREFORE, plaintiff respectfully requests that the Court:

(a) Declare that by delivering electronic copies of mortgage loan information to thirdparties and over Sand Canyon's objection, AHMSI has breached Sections 2.1(a)and 2.4 of the Cooperation Agreement.

(b) Declare that by delivering electronic copies of mortgage loan information to thirdparties and over Sand Canyon's objection, AHMSI has additionally breached theimplied covenant of good faith and fair dealing in the Cooperation Agreement.

(c) Enter an injunction requiring AHMSE to cease providing electronic copies ofmortgage loan information to third parties and limit its responses to requests forsuch information to those methods provided for in the relevant PSAs.

(d) Issue an order requiring AHMSI to specifically perform its obligations under theCooperation Agreement by providing third parties mortgage access to loaninformation only through those means specified in the relevant PSAs.

(e) Award Sand Canyon monetary damages in an amount to be proven at trial; and(t) Award Sand Canyon's costs, attorneys' fees, and such other and further relief as

the Court may deem just and proper.


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Dated: N ew Y ork, N ew Y orkFebruary 22,2012

Attorneys for Sand CanyonCorporation

Sand Canyon Complaint

Documents

Transcript of Sand Canyon Complaint