MOTION TO AMEND THE COMPLAINTS IN THESE RESIDENTIAL MORTGAGE BACKED SECURITIES ACTIONS SHOULD HAVE BEEN GRANTED, COMPETING INTERPRETATIONS OF A CONTRACT SHOULD NOT BE DETERMINED AT THE MOTION-TO-DISMISS STAGE (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Richter, over a partial dissent, determined plaintiff’s (the Trustee’s) motion to amend its complaints in these residential mortgage backed securities actions should have been granted. The amendment sought to allege defendant breached the underlying contract by failing to notify the trustee of loan breaches. The majority found that the contract provision requiring notice was ambiguous. The dissent argued the contract was not ambiguous and did not require notification:

It is well settled that “[a] request for leave to amend a complaint should be freely given, and denied only if there is prejudice or surprise resulting directly from the delay, or if the proposed amendment is palpably improper or insufficient as a matter of law” … . “A party opposing leave to amend must overcome a heavy presumption of validity in favor of [permitting amendment]” … .

Judged by these standards, the motion court should have granted the Trustee’s motions for leave to file the amended complaints with respect to the express breach of contract claims based on DBSP’s (defendant’s) failure to notify the Trustee of the loan breaches … . It cannot be said, at this early stage of the proceedings, that these claims are “palpably improper or insufficient as a matter of law” … . Nor has DBSP asserted, let alone shown, that it would suffer any prejudice or surprise directly resulting from the delay. * * *

… [B]because the disputed provision is reasonably susceptible to more than one interpretation, “it cannot be construed as a matter of law, and dismissal . . . is not appropriate” … . LDIR, LLC v DB Structured Prods., Inc., 2019 NY Slip Op 03154, First Dept 4-25-19