REWIND 2008: AS THE FINANCIAL CRISIS BROKE

ResCap’s Servicer Ratings Cut;

“Weak” Financial Condition Cited

MAY 28, 2008 | REPUBLISHED BY LIT: DEC. 26, 2021

REWIND 2008: Quinn Emmanuel, Lawyers for ResCap

$1.4 Billion Recovery for ResCap

MAY 6, 2021 | REPUBLISHED BY LIT: DEC. 26, 2021

Oral Argument, 8th Cir. Appeal, Feb. 15, 2022

Rescap Brief

ResCap Liquidating Trust v. Primary Residential Mortgage, 8th Cir. Appeal

SEP 9, 2021 | REPUBLISHED BY LIT: NOV 27, 2021

The court set forth its reasoning in meticulous findings of fact and conclusions of law spanning 210 pages. Add.243-452.

In post-trial proceedings, the court awarded ResCap $14 million in attorneys’ fees and costs and $2 million in prejudgment interest on grounds explained in a detailed 107-page order. Add.461-567.

PRMI identifies no error in any of these rulings.

COUNTERSTATEMENT OF THE CASE

This Court should affirm the district court’s judgment entered following a bench trial. The district court correctly interpreted the relevant contract provisions in keeping with Minnesota law and this Court’s decision in Residential Funding Co., LLC v. Terrace Mortgage Co. (“Terrace”), 725 F.3d 910 (8th Cir. 2013) (applying Minnesota law). The court also committed no error, much less clear error, in its factual findings as to contractual indemnification liability and damages, which in large part turn on credibility determinations and are entitled to considerable deference on appeal. And the court’s post-trial award of attorneys’ fees, costs, and interest was well within its discretion.   The awarded amounts reflect the complex nature of ResCap’s claims and the fact that PRMI’s own defense tactics increased the length and expense of the litigation.

The judgment also builds upon the district court’s years of work presiding over a consolidated proceeding of which this action was a part, in which the court adjudicated and resolved scores of ResCap’s similar litigations against mortgage originators for claims arising from the 2008 financial crisis.

In presiding over that consolidated proceeding, the district court supervised tens of millions of pages of document productions, hundreds of fact depositions, and the production of more than 100 expert reports,

and issued a series of careful and comprehensive rulings, including a 182-page summary judgment order on common issues, In re: RFC & ResCap Liquidating Trust Litig., 332 F. Supp. 3d 1101 (D. Minn. 2018) (Add.574- 755), that undergirded a number of the court’s later rulings.

All but two defendants in the consolidated cases—and in a smaller group assigned to another district judge (Magnuson, J.)—elected to settle, paying ResCap aggregate settlement amounts totaling approximately $1.3 billion.

The exceptions were PRMI and another defendant, Home Loan Center (“HLC”), which proceeded to a 16-day jury trial where the jury found for ResCap and awarded $28.7 million in damages, resulting in a $68.5 million judgment for ResCap (inclusive of fees and pre-judgment interest). See Add.253-54.

HLC settled with ResCap before perfecting an appeal. In this last remaining case in the consolidated proceeding, PRMI offers no persuasive basis to disturb the district court’s legally correct and factually well-supported judgment.

A.               The Relevant Contracts

As the district court found in its 210-page findings of fact and conclusions of law (Add.243-452), PRMI originated and sold residential mortgage loans to RFC under contracts that incorporated RFC’s detailed Seller and Client Guides

(Add.256-58).

Under the contracts, PRMI was “responsible for the credit and property underwriting” for the loans, and represented and warranted “that all Loans sold to []RFC meet the eligibility and underwriting guidelines” set forth in the Guides.

TE2876.

RFC pooled loans it purchased from PRMI and other originators, and sold them to RFC-sponsored trusts on the secondary market. Add.256 (citing App.1153-54). The trusts paid for the loans by issuing residential-mortgage backed securities (“RMBS”) to investors. Add.256.

RFC made representations to the RMBS trusts that were generally comparable to, or “back-to-back” with, the representations that originators such as PRMI had given to RFC under the Guides. Add.268-69 (citing App.1156; App.1261-62). This structure ensured that RFC could hold the originator responsible for any defective loan in an RMBS trust. Add.268-69.

PRMI acknowledged that RFC “intend[ed] to securitize some or all of the loans” RFC purchased from PRMI “in reliance upon the accuracy and truth of” PRMI’s representations, and upon PRMI’s “compliance with the … requirements, terms and conditions set forth in the Client Contract[s] and th[e] Guide[s].” Add.71; Add.262; Add.664 (Guide §§ 200, 202(II) (quotations omitted)).

PRMI also agreed it was “fully liable for any misrepresentation or breach of warranty regardless of whether [PRMI] or RFC actually had, or reasonably could have been expected to obtain, knowledge of the facts giving rise to such misrepresentation or breach of warranty.” Add.262 (Guide § A200).

The Guides “vest[ed] RFC with broad authority and sole discretion to make determinations of fact and decisions to act.” Add.260. Section 113(B) states that,

whenever any provision of this Client Guide contract requires RFC to make a determination of fact or a decision to act, or to permit, approve or deny another party’s action such determinations or decision shall be made in RFC’s sole and absolute discretion.” Add.68; Add.260-61. As this Court has held in construing the same language, such sole discretion includes determinations that originators such as PRMI had committed “Events of Default,” including by breaching its representations and warranties. Terrace, 725 F.3d at 916.

The Guides also contained “wide-ranging indemnification” provisions.

Add.265. Section A212 obligates PRMI to:

and:

indemnify RFC from all losses, damages, … court costs and reasonable attorneys’ fees, judgments, and any other costs, fees and expenses resulting from any Event of Default. This includes, without limitation, liabilities arising from … (ii) any breach of warranty, obligation or representation contained in the Client Contract, (iii) any claim, demand, defense or assertion against or involving RFC based on or resulting from such breach, [and] (iv) any breach of any representation, warranty or obligation made by RFC in reliance upon any warranty, obligation or representation made by the Client contained in the Client Contract …

indemnify RFC and hold it harmless against all court costs, attorney’s fees and any other costs, fees and expenses incurred by RFC in enforcing the Client Contract.
TE3425. Section A202(II) obligates PRMI to:

indemnify and hold RFC harmless from and against any loss, damage, … court cost, reasonable attorneys’ fees, judgment, cost, fee, expense or liability incurred by RFC as a result of any material

misstatement in or omission from any information provided by [PRMI] to RFC; or from any claim, demand, defense or assertion against or involving RFC based on or grounded upon, or resulting from such misstatement or omission or a breach of any representation, warranty or obligation made by RFC in reliance upon such misstatement or omission.

Add.757.

B. RFC’s Liabilities And Bankruptcy Settlements

RFC’s securitizations experienced substantial losses from defaulting loans originated by PRMI and other lenders. Add.277. The defaults subjected RFC to widespread claims and litigation from RMBS investors and monoline insurers that had insured certain trusts. Add.277-80. RFC filed for chapter 11 bankruptcy. Add.281.

The RMBS trustees (on behalf of the RMBS trusts) and monolines filed billions of dollars in claims in the bankruptcy case, relating to over 1,000 RMBS trusts. Add.281. The claims asserted that the loans PRMI and other lenders had originated were defective because they breached representations and warranties with respect to “the creditworthiness of the borrowers, the standards and practices used in underwriting each mortgage loan, the characteristics of each mortgage loan, and information on the mortgage loan tapes.” Add.321; see Add.281-84.

The RMBS trusts, monolines, RFC, and RFC’s principal creditors agreed to settle the claims for approximately $9 billion following months of litigation and an extensive mediation process conducted by a U.S. bankruptcy judge. Add.292-93.

The final settlement included an allocation among the RMBS trusts based upon the losses each suffered from breaching loans. Add.293-94; Add.371. The allocation did not differentiate based on legal defenses or purported differences in the strength of representations. Add.294.

The bankruptcy court confirmed the chapter 11 plan and approved the RMBS settlements (Add.295), expressly approving the breaching-loss allocation methodology as “fair and reasonable” (Add.372). ResCap, created under the confirmed plan, is responsible for prosecuting claims assigned to it by RFC (Add.255) and for distributing the proceeds of those claims to RFC’s creditors (Add.631).

C. The District Court’s Summary Judgment Orders

In two summary judgment orders—a 182-page “common-issue” order (Add.574-755) and a 176-page order in the case against PRMI, In re ResCap Liquidating Tr. Litig., 428 F. Supp. 3d (D. Minn. 2019) (Add.8-183)—the district court construed several key contract terms as a matter of law. First, the court read the plain language of the Guides to require PRMI to indemnify RFC for unproven claims of fraud and negligence against RFC that were settled in the bankruptcy. Add.607-18; Add.78-83.

Second, the court construed the Guides to confer on RFC the sole discretion to determine Events of Default under all circumstances, including when seeking indemnity. Add.645-50 (citing Terrace, 725 F.3d at 916);

Add.65-70. Third, in interpreting the Guides’ indemnification provisions, the court ruled that ResCap need establish only that the originators’ breaches were a contributing cause of RFC’s liabilities as settled in the bankruptcy, and not the proximate cause. Add.667-74; Add.87-90.

The court also ruled at summary judgment that RFC’s settlements underlying its indemnity claims were reasonable and in good faith (Add.44-58) and that RFC’s bankruptcy did not extinguish the relevant liabilities or PRMI’s indemnity obligation for those liabilities (Add.626-33; Add.58-59).

Finally, the court ruled that ResCap’s breaching-loss damages model offered a fair, reasonably certain, and non-speculative basis for allocating the settlements and thus assessing damages against PRMI. Add.740-52; Add.150-53.

D. The District Court’s Findings And Conclusions After A Bench Trial

After a 13-day bench trial, the district court entered findings of fact and conclusions of law. Add.243-452.

1. Contract Liability

As to PRMI’s breaches, the district court weighed the testimony of both parties’ reunderwriting experts and found that 64% of PRMI’s loans sold to RFC materially breached PRMI’s representations and warranties to RFC. Add.299-320. As to causation, the district court weighed the testimony of participants in RFC’s bankruptcy, including RFC’s in-house and outside counsel and experts for both RFC and the RMBS trustees, and concluded that “PRMI’s origination-level breaches certainly contributed to RFC’s liability in the Bankruptcy in several ways.” Add.320; see Add.320-31.

The proofs of claim filed in the bankruptcy alleged “widespread origination defects” resulting from PRMI’s underlying breaches, and all parties at the bankruptcy “assessed RFC’s potential liability by examining breaches of the underlying guidelines” for which PRMI and other originators were responsible. Add.323; see Add.321-23; Add.418-21.

Based on the “credible” testimony of ResCap’s reunderwriting expert and other witnesses, the court concluded that PRMI’s breaches “created a material risk that RFC could be found liable based on its breached representations to the [RMBS] Trusts and Monolines.” Add.331; see Add.324-31.

2. Damages

As to damages, the district found that ResCap’s expert testimony allocating to PRMI $5.4 million of ResCap’s nearly $9 billion in settlement liabilities was reasonably certain and non-speculative under governing Minnesota law. Add.364- 404; Add.435-52. The court found the “allocated breaching loss” methodology used by ResCap’s damages expert Dr. Karl Snow consistent with the approaches used by the parties to the bankruptcy and in every other major court-approved RMBS settlement. Add.370. PRMI offered no alternative methodology.

As the district court explained, the “allocated breaching loss” approach determines each originator’s pro rata share of RFC’s indemnifiable settlement liabilities based on “(1) the amount of breaching loans each [originator] sold to RFC, (2) each originator’s relative breach rate…, and (3) the discount that RFC achieved in its Settlements.” Add.440; see Add.365-69. The district court determined that “[e]ach of these criteria is concrete and verifiable” and is “based on objective and measurable standards.” Add.439-40.

E. The District Court’s Post-Trial Orders

After briefing and oral argument, the court issued a 107-page order awarding ResCap $14 million in attorneys’ fees and costs and $2 million in prejudgment interest. Add.461-567. The order rested on declarations from six fact witnesses and one expert witness along with “hundreds of full or redacted invoices showing detailed time entries and time spent, along with summaries of invoices for approximately 24 professionals and witnesses, describing their work, in either redacted or unredacted form.” Add.481.

In response to PRMI’s objections to the redactions, the district court undertook in camera comparison of “the redacted entries against the unredacted entries that PRMI identified, and found that the redactions were properly made,” solely to preserve attorney-client privilege or work-product protection. Add.485; see Add.485-89. Further, the court found that “PRMI is well acquainted with all periods of this litigation and can sufficiently glean any redacted activities for which ResCap’s counsel billed.” Add.488.

Notably, PRMI’s counsel had represented multiple other defendants in the district court, including HLC in the other case that went to trial. Add.457; Add.488-89.

In largely granting ResCap’s attorneys’ fees motion (discounting it by two percent (Add.543)), the court found that “a significant driver” for the amount “was the manner in which PRMI conducted its defense” (Add.517). That conduct included mounting an “extensive defense to relatively modest components of ResCap’s damages” and repeatedly “requiring ResCap and the Court to revisit previously-decided issues.” Add.518-24.

The court entered final judgment on April 28, 2021. Add.571.

SUMMARY OF ARGUMENT

I. The district court correctly found PRMI liable for contractual indemnification based on unassailable interpretations of the parties’ contracts and application of settled Minnesota law.

First, contrary to PRMI’s assertion, the district court correctly ruled that the Guides require PRMI to indemnify RFC’s settlements of unproven fraud and negligence claims. RFC relied upon PRMI’s false representations and was sued for doing so. The Guides provide that PRMI must pay for the consequence of its breaches, including the liability RFC settled in its bankruptcy.

Second, the district court correctly interpreted the Guides to grant RFC sole discretion to determine Events of Default when seeking indemnity. The Guides unambiguously provide such discretion, as this Court recognized in interpreting the same language in Terrace.

Third, contrary to PRMI’s arguments, the district court correctly found that PRMI’s breaches were a contributing cause of the liabilities that RFC settled. Minnesota law did not require ResCap to prove that RFC actually would have been found liable at trial had it not settled. Rather, all ResCap was required to prove was exactly what the district court found: PRMI’s breaches contributed to the risk that RFC settled in its bankruptcy, as the uncontroverted evidence at trial demonstrated.

II. The district court properly awarded $5.4 million in damages to ResCap based on PRMI’s breaches of its indemnification obligations.

Contrary to PRMI’s arguments, RFC’s bankruptcy did not “extinguish” the liabilities it settled, but rather transferred them to the ResCap trust so that creditors could be compensated if, and when, breaching originators such as PRMI pay. The district court, moreover, properly used the same Allocated Breaching Loss methodology to calculate damages that was used in the bankruptcy court, and which has been used to allocate every other major RMBS settlement. The court likewise correctly rejected PRMI’s efforts to cherry-pick additional allocation factors as speculative and unfair.

III. The district court acted well within its discretion in awarding attorneys’ fees, costs, and prejudgment interest.

The court’s in camera review of certain ResCap time entries, with redacted versions or summaries for PRMI, was routine, necessary to protect attorney-client privilege, and provided PRMI all the process it was due. The court’s fee and cost awards were amply supported by voluminous factual findings, including that PRMI itself caused significant expense by relitigating issues that already had been decided. Finally, the court correctly awarded prejudgment interest under Minnesota law for the period between the clerk’s ministerial entry of judgment following trial and the court’s subsequent entry of a final, appealable judgment.

STANDARD OF REVIEW

This Court reviews contract interpretation de novo. Enervations, Inc. v. Minnesota Mining & Mfg. Co., 380 F.3d 1066, 1069 (8th Cir. 2004). The Court reviews findings of fact after bench trial for clear error and conclusions of law de novo. Williams v. Carter, 76 F.3d 199, 200 (8th Cir. 1996). The Court reviews evidentiary rulings and awards of damages, attorneys’ fees, and costs for abuse of discretion. Heaton v. The Weitz Co., 534 F.3d 882, 887 (8th Cir. 2008); Walker v. Kane, 885 F.3d 535, 538 (8th Cir. 2018); St. John v. United States, 240 F.3d 671, 678 (8th Cir. 2001). Questions of law regarding prejudgment interest are reviewed de novo. Children’s Broad. Corp. v. Walt Disney Co., 357 F.3d 860, 868-69 (8th Cir. 2004).

ARGUMENT

I. THE CONTRACT JUDGMENT SHOULD BE AFFIRMED

In concluding that PRMI was contractually obligated to indemnify ResCap for its allocated share of the settled liability against RFC, the district court correctly interpreted the plain language of the indemnity provisions in sections A202(II) and A212 of the Guides and faithfully followed the well-settled Minnesota contract law governing this dispute. This Court should affirm.

A. The Contracts Require PRMI To Indemnify Fraud And Negligence Claims Against RFC

Contrary to PRMI’s argument (Br. 26-30), the district court correctly ruled that, under sections A202(II) and A212 of the Guides, RFC’s own “alleged wrongdoing—whether based on theories of negligence or fraud—does not bar it from seeking indemnity from PRMI.” Add.80 (citing Add.610).

Another district court independently reached the same conclusion in a proceeding involving other ResCap cases against originators. See Residential Funding Co., LLC v. Univ. Am. Mortg. Co. (“UAMC”), 2018 WL 4955237, at *8 (D. Minn. Oct. 12, 2018) (Magnuson, J.) (“Section A202(II) and A212 clearly and unequivocally express the parties’ intent to transfer liability to the lenders for RFC’s own acts of negligence.” (cleaned up)).

As the district court correctly ruled, sections A202(II) and A212 of the Guides “expressly apprised” PRMI that it was obligated to indemnify RFC for any type of claim (whether based in tort or contract), including claims based on RFC’s own conduct. Add.81; see Add.610 (citing Johnson v. McGough Constr. Co., 294 N.W.2d 286, 288 (Minn. 1980)). Section A202(II) provides that PRMI “agrees to indemnify and hold RFC harmless … from any claim, demand, defense or assertion against or involving RFC based on or grounded upon, or resulting from… a breach of any representation, warranty or obligation made by RFC in reliance upon [a PRMI] misstatement or omission.” Add.757 (emphasis added).

Likewise, in Section A212, PRMI agreed to indemnify RFC from “liabilities arising from … (iii) any claim, demand, defense or assertion against or involving RFC based on or resulting from [PRMI’s] breach…[and] (iv) any breach of any representation, warranty or obligation made by RFC in reliance upon any warranty, obligation or representation made by [PRMI]….” Add.760 (emphasis added).

PRMI misplaces reliance (Br. 27-29) on the fact that sections A202(II) and A212 do not “refer to negligence, carelessness, or any similar concepts,” or “fraud, intentional misconduct, or any similar concept.”

As the district court correctly ruled (and as PRMI acknowledges, Br. 27), indemnification clauses “need not include the word ‘negligence’” or any similar words in order to cover such conduct. Add.609 (quoting Dewitt v. London Rd. Rental Ctr., Inc., 910 N.W.2d 412, 417 (Minn. 2018)).

Rather, an indemnity provision may use broad language to cover “all” or “any” claims or liabilities, so long as it links that language to the indemnitee’s “own acts or omissions” and “fairly apprise[s]” the indemnitor “in clear and unequivocal language, that the provision made [indemnitor] liable for claims against [indemnitee] related to [indemnitee’s] own conduct.” Dewitt, 910 N.W.2d at 419.

The indemnity provisions here do just that.

Contrary to PRMI’s misreading of Dewitt (Br. 27, Br. 29-30), that decision found such a link missing based on facts inapposite here. There, Tower (indemnitor) rented picnic tables from London (indemnitee) and agreed to an indemnity provision stating that Tower assumed “all risks associated with the possession, use, transportation and storage of the Equipment” and agreed to indemnify London “from and against, any and all liabilities, claims … resulting from or arising in connection with such possession, use, transportation and/or storage.” Dewitt, 910 N.W.2d at 418-19 (emphasis removed).

The provision did “not specify exactly whose possession, use, transportation, or storage is covered,” and thus “did not link the broad language to London Road’s own acts or omissions.” Id. at 419 (second emphasis added). In sharp contrast, sections

A202(II) and A212 of the Guides here do link the broad language apprising PRMI of its indemnity obligations as to any type of claim with the specific obligation to indemnify claims and liabilities resulting from a breach of any representation, warranty, or obligation “made by RFC” in reliance on PRMI’s misrepresentations. Add.80-81 (quoting sections A202(II) and A212) (citing Add.610).

Other decisions are in accord. Indeed, the Minnesota Supreme Court has held that language less clear than the provisions here was sufficient to cover negligence claims. In Johnson (cited approvingly in Dewitt), the Minnesota Supreme Court held that the indemnity provision covered the indemnitee’s own negligence by providing that “the [indemnitor] will … ‘indemnify and save harmless the Contractor … from all such claims including, without limiting the generality of the foregoing, claims for which the Contractor may be, or may be claimed to be, liable.’” 294 N.W.2d at 288 (emphasis added).

The district court correctly ruled that the provisions here were akin to those in Johnson and distinguishable from the ones cited by PRMI. See Add.608-12.

Section A200 of the Guides, moreover, confirms that PRMI was fairly apprised of the scope of its obligations. Section A200 provides that RFC relied on PRMI’s representations, including in making its own representations to the RMBS trusts and monolines. Add.16 (“[PRMI] acknowledges that RFC purchases

Loans in reliance upon the accuracy and truth of [PRMI’s] warranties and representations”). Section A200 also provides that PRMI “is fully liable for any misrepresentation or breach of warranty regardless of whether it or []RFC actually had, or reasonably could have been expected to obtain, knowledge of the facts giving rise to such misrepresentation or breach of warranty.” Add.16.

As the district court correctly ruled, this language shows that RFC was relying on PRMI’s representations in making its own representations, and that PRMI was liable to RFC under the Guides, regardless of RFC’s knowledge. Add.706. PRMI has not challenged that ruling on appeal.

Moreover, contrary to PRMI’s assertion (Br. 27-28), the district court correctly ruled that the Guides do not merely indemnify RFC’s liability for contract claims (i.e., “breaches”), but rather for “any claim … based on or resulting from” breaches. Add.20-21 (quoting section A212) (emphasis added); see Add.81.

As the district court recognized, nothing in the Guides limits the terms “breach” or “obligation” to contractual breaches and obligations. Add.611-12 (citing Abu Dhabi Commercial Bank v. Morgan Stanley & Co., 910 F. Supp. 2d 543, 547 (S.D.N.Y. 2012) (under New York law, claims for negligent misrepresentation may be based on a breach of the defendant’s duty to provide accurate information)).

And the claims asserted against RFC, whether sounding in contract or tort, were “based on or resulting from” alleged breaches of RFC’s representations. See, e.g., TE1008 (“to the extent [RFC] … knew or should have known of certain breaches of the warranties, … the Claimant has a claim for common law fraud and/or negligent misrepresentation”).

PRMI similarly errs in asserting (Br. 29) that the Guides do not indemnify against fraud claims because RFC could not have relied on PRMI’s representations if it knew they were false. A fraud claim does not require knowledge of falsity—it can be based upon an alleged reckless disregard of the truth (here, reliance on PRMI’s false representations). See Suez Equity Inv’rs, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 104 (2d Cir. 2001) (as to fraud, scienter is satisfied by false statement that is knowingly false “or recklessly made”).

In any event, the Guides presume the reliance element is satisfied, and that RFC securitized the loans in reliance upon PRMI’s representations. See supra 5, 18-19; see also Add.706.

Finally, it is undisputed that RFC was never found liable for intentional misconduct, and PRMI offered no evidence that RFC engaged in any misconduct. Add.81-82; Add.613-14; UAMC, 2018 WL 4955237, at *8. Indeed, the RMBS trusts’ claims, which comprise the vast majority of the settlements,1 did not even allege that RFC committed fraud.

Rather, they simply alleged that “to the extent” that RFC engaged in fraud, then those trusts were asserting fraud claims. TE1008.

As the district court correctly noted, such barebones, contingent allegations were likely insufficient to satisfy the heightened pleading standard for fraud. Add.615.

B. The Contracts Grant RFC Sole Discretion To Determine Events Of Default When Seeking Indemnity

Contrary to PRMI’s argument (Br. 30-34), the district court also correctly ruled that “RFC possessed the sole discretion under the Client Guide to make factual determinations including whether an Event of Default has occurred,” and that RFC’s indemnity rights rest on and presuppose that sole discretion. Add.68- 69; see Add.645-50 (quoting Terrace, 725 F.3d at 916).

The Client Guide states that, “whenever any provision of this Client Guide contract requires RFC to make a determination of fact or a decision to act, or to permit, approve or deny another party’s action such determination or decision shall be made in RFC’s sole and absolute discretion.” Add.68 (emphasis added).2

The district court correctly determined that “clear [and] unambiguous” language “‘grants RFC sole, unreviewable discretion to make determinations of fact’ which includes and involves ‘declaring Events of Default.’” Add.65; Add.69 (quoting Add.648-49); see TE2797 (Client Guide A208, defining “Event of Default” to include breaches of loan-level representations).

As the district court further explained, “once that determination of fact has occurred, i.e., once RFC determines that an Event of Default has occurred,” other sections of the Guides, including “Sections A210 [repurchase] and A212 [indemnity], simply speak of remedies that RFC may exercise under the contract.” Add.649; see Add.68-69.

The district court reached this conclusion against the backdrop of multiple similar decisions issued over nearly a decade by and within this Circuit, each of which concerned identical or near-identical contract language. In Terrace, for example, this Court held that the Client Guide grants RFC “‘sole discretion’ to determine whether an Event of Default has occurred.” 725 F.3d at 916 (affirming Residential Funding Co. v. Terrace Mortg. Co., 850 F. Supp. 2d 961 (D. Minn. 2012) (Nelson, J.)).

Likewise, in CitiMortgage, Inc. v. Chicago Bancorp, Inc., 808 F.3d 747 (8th Cir. 2015) (applying Missouri law), which concerned a contract used by one of RFC’s competitors that included language nearly identical to that in the Client Guide, this Court held that “[Terrace] controls our analysis.” Id. at 751. There, this Court explained that “like the buyer in [Terrace], CMI had ‘sole and exclusive discretion [to] determine’ whether a loan was defective” and exercised that discretion by “determin[ing] that each of these loans was based on a material misrepresentation or inaccuracy.” Id. at 752.

This Court enforced near-identical language yet again in CitiMortgage, Inc. v. Equity Bank, N.A., 942 F.3d 861 (8th

Cir. 2019) (applying Missouri law), holding that the plaintiff had “‘sole and exclusive discretion’ to determine whether a loan was defective.” Id. at 865. Multiple district courts have applied those holdings in other cases, as discussed below. See infra 25-26.

None of PRMI’s arguments identifies any error in the district court’s application of these precedents. First, PRMI wrongly argues (Br. 30) that Client Guide Section 113(B), quoted above, “is not an independent grant of power” but rather, “as the section’s title indicates … a ‘General Rule[] of Interpretation.’”

The district court correctly rejected that argument as inconsistent with the Client Guide’s unambiguous language, including because that is the only contractual provision that reasonably could be interpreted as the source of RFC’s authority to make any factual determinations in its sole discretion. Add.68-69; Add.648-49. PRMI’s argument also conflicts with Terrace, in which this Court cited Section 113(B) as the source of RFC’s sole discretion:

“The Client Guide gives Residential ‘sole discretion’ to determine whether an Event of Default has occurred, Appellant’s App. at 321 [i.e., Section 113(B)], and Terrace agreed to buy back the loan if Residential determined as much. Id. at 357 [i.e., Section A210].” Terrace, 725 F.3d at 916 (emphasis added).3 PRMI’s reliance on Section 113’s chapter heading (“General Rule of Interpretation”) as purported evidence that Section 113(B) is not an independent grant of power disregards that Section 113 indisputably contains more than mere “rules of interpretation.”

See, e.g., TE2766 (Guide §113(D) (“Power of Attorney.  The Client by entering into the Client Contract and delivering Loans to RFC makes and appoints RFC Client’s true and lawful attorney-in-fact.”)).

Second, PRMI errs in asserting (Br. 31-32) that RFC has “sole discretion to determine whether an Event of Default has occurred” only if the right to exercise sole discretion is “triggered” by a separate section in the Guides that expressly “requires []RFC to make a determination.” The district court correctly rejected that argument as inconsistent with the contract’s text. The Guides’ remedial clauses, which PRMI contends are a necessary “trigger” for RFC’s exercise of sole discretion, are no such thing:

They “do not empower RFC with sole discretion but rather … presuppose that RFC has such power and then simply set[] forth the clients’ obligations once that discretion has been exercised”; “[t]he source of the power is Section 113(B).” Add.649. The district court also correctly determined that PRMI’s position is inconsistent with Terrace, in which this Court cited Section 113(B) in holding that “[t]he Client Guide gives Residential ‘sole discretion’ to determine whether an Event of Default has occurred,” without requiring additional “triggering” language. Add.649-50.

PRMI fails in its attempt (Br. 32) to distinguish Terrace as supposedly involving a repurchase remedy under Section A210 and not an indemnity claim under Section A212, for Terrace in fact affirmed summary judgment not only as to a repurchase claim but also as to an indemnity claim—the remedy at issue here. See Terrace, 850 F. Supp. 2d at 975 (awarding fees as “contractual indemnification”).4

Three other district court judges within this Circuit have cited Terrace in construing near-identical sole discretion clauses as independent grants of power applicable to indemnity claims. In Ally Bank v. Bay-Valley Mortgage Group, 2015 WL 12683832 (D. Minn. July 14, 2015) (Kyle, J.) (applying Minnesota law), the court interpreted substantively identical contract language as “reserv[ing] to [RFC’s affiliate] the ‘sole discretion’ to … ‘make a determination of fact’” concerning the existence of an Event of Default. Id. at *3.

The court further concluded that the right to exercise sole discretion exists independently of any separate right to “ma[k]e a ‘decision to act’” by “demand[ing] repurchase” or some other remedy. Id. In so ruling, the court rejected PRMI’s current argument, concluding instead that sole discretion is available even as to Guide sections that do not mention a “triggering” exercise of “discretion”:

Does the absence of … “discretionary” language in the list of Events of Default mean that Ally actually lacks discretion to determine if a default has occurred?

In the Court’s view, the answer is no. The inclusion of discretionary language in some places and not others merely creates a measure of redundancy[5] in the Client Contract, since Ally always enjoyed “sole discretion” to make a determination of fact or a decision to act.

Id.; see UAMC, 2018 WL 4955237, at *5 (Magnuson, J.) (RFC has sole discretion to “determin[e] … whether events of default have occurred” in seeking indemnity); Ally Bank v. Lenox Fin. Mortg. Corp., 2017 WL 830391, at *5 (D. Minn. Mar. 2, 2017) (Doty, J.) (sole discretion does not “only appl[y] to … [the] right to demand repurchase,” but rather more broadly to the “right to declare that the loans ‘fail[ed] to conform with each and every [representation and warranty]”). This Court should decline PRMI’s invitation to overturn a decade’s worth of authority on these issues and risk destabilizing the commercial relationships created in their wake.

Third, there is no support in the record or caselaw for PRMI’s suggestion (Br. 33) that RFC may determine a breach in its sole discretion for purposes of demanding repurchase, but must prove the very same breach for purpose of seeking indemnity—even if RFC seeks repurchase and indemnity as alternatives in the same case.

Contrary to PRMI’s suggestion, that distinction does not “make[] sense,” and PRMI’s assertion that “[n]o reasonable client would have conferred on RFC such sweeping authority” is merely a repackaged version of the unconscionability argument this Court rejected in Terrace, 25 F.3d at 917.

Finally, the district court correctly rejected PRMI’s self-serving arguments (Br. 33-34) about the supposed “absurd” and “harsh” results of the court’s interpretation. As the court explained, sole discretion clauses are common in the mortgage industry; “the contract here was one that several sophisticated entities willingly signed,” including scores of other originator defendants that willingly settled claims that RFC asserted based on its sole discretion; and “in commercial transactions it does not in the end promote justice to seek strained interpretations in aid of those who do not protect themselves.”

Add.650 (quoting James Baird Co. v. Gimbel Bros., 64 F.2d 344, 346 (2d Cir. 1933)); see CitiMortgage, 808 F.3d at 747 (Bancorp’s “cries of injustice fall on deaf ears, as [it] freely contracted for the obligations by which it now finds itself bound.” (quotation omitted)); Terrace, 725 F.3d at 916-17 (RFC “paid a premium” for the right to sole discretion in a “freely negotiated agreement between two sophisticated parties”).

C. PRMI’s Breaches Caused Indemnifiable Liability

PRMI further errs in asserting (Br. 34-37) that ResCap must prove an actual breach of RFC’s obligations to the RMBS trusts and monolines in order to be indemnified for the settlements. To the contrary, as the district court correctly ruled, ResCap need prove only that RFC faced a risk of liability to which PRMI’s breaches contributed. Add.87-90.

Moreover, the district court correctly rejected PRMI’s arguments (Br. 37-42) that RFC was not liable for breaches of two representations it had made to RMBS trusts and monolines. The district court’s findings regarding the meaning of those representations and RFC’s risk of liability for breaches of those representations were supported by ample evidence at trial, which PRMI does not meaningfully dispute.

1. ResCap Was Not Required To Prove RFC’s Actual Liability

Both governing Minnesota law and the Guides make clear that ResCap need only prove that PRMI’s breaches contributed to the liability ResCap settled in its bankruptcy. PRMI’s assertion that ResCap must prove the breaches against itself is contrary to the established rule that, “where the underlying action settles before trial, the party seeking indemnification need only show it could have been liable under the facts shown at trial not whether they would have been.” Netherlands Ins. Co. v. Main St. Ingredients, LLC, 745 F.3d 909, 913 (8th Cir. 2014) (quotation omitted) (applying Minnesota law).

Indemnity for a settlement does not require conducting the “‘very trial obviated by the settlement.’” Add.604 (quoting Alton M. Johnson Co. v. M.A.I. Co., 463 N.W.2d 277, 279 (Minn. 1990)). Rather, it requires only that the indemnified party show that it faced a risk of exposure and reasonably settled that risk. Netherlands, 745 F.3d at 913 (holding that a “reasonable and prudent settlement can trigger the duty to indemnify”).

Here, the district court ruled that the settlements were reasonable (Add.44-58), and PRMI does not challenge that ruling on appeal.

The plain language of the Guides is consistent with this Minnesota law. Section A212 of the Guides requires PRMI to indemnify RFC for, among other things, “any claim, demand, defense or assertion against or involving RFC based on or resulting from [a PRMI] breach.” Add.760 (emphasis added).6 Thus, by their plain terms, the Guides do not require actual findings of liability, but rather indemnity against claims or assertions like those settled in the bankruptcy.

The district court correctly held that these causal terms—“based on” and “resulting from”—require only a “cause and result relationship” (contributing causation), not proximate causation. Add.669-71 (applying Faber v. Roelofs, 250 N.W.2d 817, 822 (Minn. 1977)). PRMI does not challenge that ruling on appeal.
Contrary to PRMI’s erroneous suggestion based on selective quotation (Br. 35-36), the indemnity provisions cover not only “breaches” but also “claims,” “demands,” and “assertions.” ResCap’s indemnity claims implicate this language because they seek indemnity for claims and assertions that resulted from PRMI’s breaches and were settled in the bankruptcy.

2. PRMI’s Breaches Contributed To RFC’s Liability

PRMI does not contend there is any clear factual error in the district court’s finding (Add.320) that “[t]he evidence at trial demonstrated that PRMI’s origination-level breaches certainly contributed to RFC’s liability in the Bankruptcy in several ways.” Nor could it, as this conclusion was based on overwhelming evidence from RFC’s bankruptcy showing that the parties to the settlements assessed RFC’s risk of liability by assessing loan-level origination breaches by originators, including PRMI, and that “PRMI’s breaches of representations to RFC created a material risk that RFC could be found liable based on its breached [representations] to the Trusts and Monolines.” Add.331.

The district court considered hours of testimony from participants in the bankruptcy, including RFC’s in-house and outside counsel, and experts for both RFC and the RMBS trustees. Add.321-24; Add.418-21.

All of the witnesses testified that RFC faced claims asserting loan-level origination defects and that the parties to the settlements “assessed loan-level origination breaches in order to gauge RFC’s potential repurchase exposure” to the RMBS trusts and monolines. Add.322.

Likewise, the proofs of claim filed in the bankruptcy themselves alleged breaches of “loan-level characteristics” and “widespread origination defects.” Add.321-23; Add.418.

Accordingly, the expert analyses of those claims in the bankruptcy examined breaches of the underlying guidelines—for which originators like PRMI were responsible (Add.419)—to assess RFC’s exposure to the RMBS trusts and monolines.

“PRMI did not present any evidence to the contrary.” Add.323.

Rather, PRMI speculated that everyone in the bankruptcy was simply mistaken.

The district court found that “[i]t defies credibility to suggest that all of the experts and their attorneys in the Bankruptcy simply made a mistake, or engaged in the wrong analysis, and that the Bankruptcy Court erred in relying on those analyses in approving the Settlements.” Add.324.

The district court’s further finding (Add.331) that PRMI’s breaches “created a material risk that RFC could be found liable based on its breached Reps to the

Trusts and Monolines” similarly rested in part on the “highly credible” testimony of ResCap’s reunderwriting expert (Add.327), and the corroborating testimony of fact witnesses and other experts (Add.324-31). PRMI’s experts, on the other hand, failed to address the risk of liability RFC faced based on PRMI’s breaches. Add.328; Add.330.

The district court was entitled to rely on ResCap’s unrebutted evidence that PRMI’s breaches contributed to RFC’s risk of liability.

3. The Disputed Representations Warrant Compliance With Guidelines And Provide A Loan-Level Remedy For Breach

In focusing instead (Br. 37-40) on whether RFC actually breached two specific representations (the Loan Program and Credit Grade representations, hereinafter, the “disputed representations”), PRMI ignores the correct causation standard and in any event errs in challenging the district court’s interpretation of the disputed representations.

First, as noted, ResCap was not required to prove it actually breached any representations—only that PRMI’s breaches were a contributing cause of the claims against it. See supra 28-30.

The relevant question below thus was not which party in this litigation offered the correct interpretation of the disputed representations, but rather whether at the time of RFC’s bankruptcy and the settlements those representations put RFC at risk of liability for defective loans, and whether that risk was causally connected to PRMI’s breaches of representations regarding those loans. As described above, the uncontroverted evidence is that RFC faced a risk of liability on its representations, including the disputed representations. See supra 30-32.7

Second, although unnecessary to the district court’s proper finding of causation, the court nonetheless correctly concluded that ResCap’s interpretation of the disputed representations was “persuasive.” Add.352-53. PRMI wrongly argues (Br. 38) that the plain language of the disputed representations “shows they do not warrant compliance with underwriting guidelines.”

The language that PRMI quotes references “Credit Grades … as described generally in the Prospectus Supplement.”

PRMI fails to mention, however, that the Credit Grades described in the Prospectus Supplement are the Credit Grades in the Guides, and that each Credit Grade is subject to specific underwriting criteria (guidelines) set forth in the Guides.8 Similarly, PRMI asserts (Br. 39) that the Loan Program representation does not mention specific loan programs, but omits that, in order to be in a Loan Program, a loan had to meet the underwriting criteria for that program as set forth in the Guides.9

The court’s conclusion was also supported by extensive fact and expert testimony regarding both disputed representations, including their purpose, structure, and the industry understanding, all of which confirmed that the disputed representations warrant compliance with guidelines and provide a loan-level remedy for breach. Add.343-53.

Contemporary documentary evidence showed that RFC and other industry participants considered the disputed representations to be “underwriting rep[s]” in assessing loan repurchase exposure. Add.346-47; Add.352-53. In contrast, PRMI’s experts conceded that their interpretation of the disputed representations would make them “impossible” to implement, because the requisite breach analysis would be “mind-numbingly complex,” require “extensive discovery,” and “be highly inefficient.” Add.350.

Finally, PRMI erroneously maintains (Br. 39) that, if RFC had wanted to warrant compliance with underwriting guidelines, it “easily” could have done so with a “substantial compliance” representation (as was done with 17 RMBS trusts).

This argument again ignores both the plain language of the disputed representations and the factual record.

First, as described, all of the parties in the bankruptcy assessed RFC’s exposure based on guideline breaches—they did not solely do so for 17 RMBS trusts with an express “substantial compliance” representation. See supra 10; see also Add.419 n.42. And the district court correctly rejected PRMI’s speculation that every party in the bankruptcy was wrong. Add.324.

Second, RFC had specific reasons for making the disputed representations for RMBS products where loan programs and credit grades were “critical disclosure[s]” for investors and rating agencies. Add.343-45; Add.352-53.

The trial evidence also demonstrated that there was more than one way to warrant compliance with underwriting criteria, that representations could overlap, and that both disputed representations were guideline representations because loan program and credit grade parameters were defined in the Guides. Add.362-64.

PRMI thus has no factual basis for arguing that ResCap could make only one type of representation in one particular way.10

Accordingly, the district court was correct in holding that PRMI’s breaches contributed to RFC’s risk of liability on the disputed representations, and thus that PRMI’s breaches caused RFC to incur indemnifiable liability. And the result is the same even if the district court were required to interpret the disputed representations, because ResCap’s interpretation is correct.

4. Breaches Of The “No Default” Representation Contributed To RFC’s Settlement Liability

PRMI likewise fails to identify (Br. 41-42) any error in the district court’s assessment of another representation RFC made to the RMBS trusts and monolines—the “No Default” representation with a knowledge qualifier. RFC represented to certain RMBS trusts and monolines that, “[t]o the best of RFC’s knowledge …, there is no default …. under the terms of any Mortgage Note.” Add.763.

PRMI contends that ResCap did not prove RFC breached this version of the No Default representation, but PRMI again assumes an incorrect standard. As noted, ResCap was not required to prove that RFC actually breached any representations. Applying the proper standard, the district court correctly found that PRMI’s breaches contributed to RFC’s risk of liability under the No Default representation, including the variation with a knowledge qualifier. Add.337-43.

The uncontroverted testimony showed that, even under this variation of the representation, “if there was a default, RFC was still at risk” because a plaintiff might establish that “RFC knew or should have known” of the default. Add.342.

PRMI “offered no fact testimony or documentary evidence” to the contrary. Add.341.

Contrary to PRMI’s contention (Br. 41-42), New York courts apply the “knew or should have known standard” to a “best knowledge” warranty. See, e.g., Am. Transtech Inc. v. U.S. Tr. Corp., 933 F. Supp. 1193, 1200 (S.D.N.Y. 1996) (applying New York law) (defendant could be liable under “best of knowledge” warranty if, at time of representation, it had knowledge or, based on documents to which it had access, “should have known”); Slotkin v. Citizens Cas. Co., 614 F.2d 301, 314 (2d Cir. 1979) (applying New York law) (a party that makes a representation “to the best of his knowledge” is responsible for the contents of documents in its possession).11

But even if this were not the case, the testimony still supports the court’s findings because it showed that RFC faced the risk of liability if a plaintiff were able to establish that “RFC knew” of the default. Add.342. There is thus no legal or clear factual error in the finding that PRMI’s breaches exposed RFC to risk of liability under the version of the No Default representation with a knowledge qualifier.

II. THE DAMAGES JUDGMENT SHOULD BE AFFIRMED

A. PRMI Was Obligated To Indemnify RFC’s Liabilities, Which Were Not “Extinguished” In Bankruptcy

PRMI does not challenge the district court’s correct ruling that the

“Client Guide requires [PRMI] to indemnify RFC for the liabilities as well as for out-of- pocket losses” (Add.70; Add.658), or the fact that those liabilities amounted to the $9 billion in RMBS trust and monoline “Allowed Claims” the bankruptcy court approved pursuant to RFC’s plan.

Instead, PRMI contends (Br. 42-47) that RFC’s bankruptcy somehow “discharged” and “extinguished” the Allowed Claims, thus relieving PRMI of its indemnification obligations for anything other than the cents- on-the-dollar that RFC’s creditors have been paid.

The district court correctly rejected PRMI’s argument, as did Judge Magnuson in a related case, calling it “utterly without merit” and an “attempt to circumvent the clear language of [RFC’s] plan.”

UAMC, 2018 WL 4955237, at *8.

Those rulings were correct for multiple reasons.

First, the Bankruptcy Code makes clear that “discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt.” 11 U.S.C. § 524(e) (emphasis added). As this Court has explained:

Where a claim is discharged, the debt is recognized in bankruptcy— that is, allowed—but the debtor is relieved of responsibility for it. Because this relief is limited to the debtor, a party derivatively liable for the debt, such as an insurer, remains responsible.

Bursch v. Beardsley & Piper, 971 F.2d 108, 114 (8th Cir. 1992) (applying Minnesota and federal bankruptcy law) (emphasis added).

Second, RFC’s bankruptcy did not “extinguish” the claims for which ResCap seeks indemnity.

To the contrary, under RFC’s plan, the RMBS trusts’ and monolines’ claims were recognized as Allowed Claims of approximately $9 billion. The plan did not allow $9 billion in claims, only to have them disappear.

PRMI argues (Br. 43) that the plan was in “full and final satisfaction” of the Allowed Claims, but ignores what the Allowed Claims were “satisfied” with.

The Allowed Claims were not “fully satisfied” for nothing, but rather under the plan were “in exchange for” Liquidating Trust Units (TE2515), through which the creditors would receive payment on their claims as assets became available (TE2560-61).

This included any recoveries from PRMI in this action, since RFC’s creditors are the ultimate victims of PRMI’s misconduct.

Thus, the more that is recovered from PRMI and other breaching originators, the more creditors whom PRMI harmed would be entitled to receive in distributions from ResCap.

As Judge Magnuson correctly explained in a related case:

Here, the plan specifically provided that RFC’s liabilities, as well as its claims against the lenders, were not extinguished at the plan’s confirmation. The plan established the liquidating trust and provided that all causes of action RFC had were preserved in the trust. And the plan “unequivocally preserves Rescap’s right to indemnification for the claims at issue here.”

UAMC, 2018 WL 4955237, at *8 (quoting Add.629); see TE2430; TE2432; TE2454-56; TE2549-50; TE2554.

Third, Plaintiffs are entitled to seek indemnity for the full amount of the Allowed Claims recognized by the bankruptcy court, and not the discounted, cents- on-the-dollar that the Liquidated Trust has been able to pay to date.

As noted, PRMI does not dispute in this appeal that it must indemnify RFC not only for actual, out-of-pocket losses, but also for liabilities.

The Allowed Claims are the liabilities. See Collins v. Farmers Ins. Exch., 135 N.W.2d 503, 507 (Minn. 1965) (insurer required “to pay the amount the insured became liable for, not the amount he paid as a result of a collateral transaction,” such as settling the liability at a discount (emphasis added)). The plan expressly preserved “Causes of Action,” which included “indemnity claims.” TE2482-83; TE2549-50.

Indeed, there is no logical reason why the bankruptcy court, RFC, and the creditors ultimately harmed by PRMI’s misconduct would in any way limit PRMI’s indemnification obligations.

Fourth, PRMI would receive a windfall if it could escape liability due to RFC’s insolvency, which was due in large part to the misconduct of PRMI and other mortgage originators.

As the Seventh Circuit has explained, an indemnitor such as PRMI would “profit greatly from [the debtor’s] bankruptcy” if, as PRMI here urges, “its obligations are based on the arbitrarily discounted amount that [creditors] actually receive,” rather than on the amount the creditors are owed. UNR Indus., Inc. v. Continental Cas. Co., 942 F.2d 1101, 1105 (7th Cir. 1991); see In re Coho Res., Inc., 345 F.3d 338, 343 (5th Cir. 2003) (“it makes no sense” and is “fundamentally wrong” to “allow an insurer to escape coverage for injuries … merely because the insured receives a bankruptcy discharge” (quotation omitted)).12

Finally, the cases that PRMI cites do not support its position.

Contrary to PRMI’s contention (Br. 44), Trapp v. R-Vec Corp., 359 N.W.2d 323 (Minn. Ct. App. 1984), nowhere holds that “[a] debtor may not seek indemnity for a liability discharged in bankruptcy.” Trapp involved a very different situation than presented here. The debtor in Trapp sought indemnity not for the claim allowed by the trustee in the bankruptcy case ($10,000), but rather for a far greater amount than allowed in the bankruptcy ($21,450). Id. at 326.

When a creditor tried to collect the greater amount from the debtor personally post-bankruptcy, the debtor in turn tried to collect from the indemnitor. Id. Trapp held that, because the discharge rendered void any effort by the creditor to collect the larger claim from the debtor personally, the debtor too was barred from seeking indemnity for that claim. See 359 N.W.2d at 328.

Here, by contrast, ResCap is seeking indemnity for the Allowed Claims that were recognized in RFC’s bankruptcy, and nothing more. That ResCap does not have the funds to pay those claims in full is not a defense to PRMI’s indemnification obligations. Indeed, PRMI’s refusal to pay has directly affected what ResCap can pay to creditors, since the proceeds of this litigation are funding those payments.

Nor is PRMI’s argument supported by its other cases. One involved an implied indemnity claim, which is available only for “out-of-pocket loss”—not liabilities, as relevant here. See Bank of India v. Trendi Sportswear, 2002 WL 84631, *4 (S.D.N.Y. Jan. 18, 2002), aff’d, 64 F. App’x 827 (2d Cir. 2003).

The other involved a situation in which the party seeking indemnity did not actually incur the obligation. See Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host Corp., 418 F.3d 168, 179-80 (2d Cir. 2005).

B. The Damages Methodology Reasonably Allocated The Settlements

Contrary to PRMI’s erroneous argument (Br. 47-56), Minnesota law requires only that damages for breach of contract be proved with “reasonable certainty,”

and the trier of fact has broad discretion in awarding damages. The district court correctly applied that settled law in awarding damages against PRMI. The district court was faced with the enormous task of allocating $9 billion in liabilities, owing to hundreds of RMBS trusts and monoline insurers, and caused by over 80 different originators that sold defective loans to RFC.

The district court properly adopted ResCap’s “Allocated Breaching Loss Approach, which provided a fair, practical, reasonable, and nonspeculative way to allocate damages among more than 80 different originators.” Add.438.

PRMI’s assertions to the contrary misstate Minnesota law and distort the extensive factual record and expert testimony on which the district court relied.

First, PRMI’s supposed “relative value test” is based on its erroneous and overly expansive reading of two insurance coverage cases—UnitedHealth and King’s Cove—neither of which involved determining the liability of a breaching defendant such as PRMI, nor how to apportion responsibility among multiple responsible parties.

Moreover, unlike in UnitedHealth or King’s Cove, the district court here relied upon the same methodology for allocating damages that the parties in RFC’s bankruptcy used to allocate the settlements among the trusts, and that has been used in every other major RMBS settlement.

Second, in addition to advocating the wrong legal standard, PRMI makes meritless objections to the district court’s consideration of the evidence.

The district court correctly rejected PRMI’s attempts to cherry-pick factors that purportedly would reduce PRMI’s share of the damages caused by its numerous breaches; to rely on so-called “contemporaneous evidence” of how RFC purportedly “valued” certain claims; and to evade liability for so-called “non- indemnifiable claims” based on unproven allegations of fraud and negligence.

1. The Correct Standard Is Reasonable Certainty

As the district court correctly ruled (Add.435-36), “[u]nder Minnesota law, damages for breach of contract must be proved to a reasonable certainty, and a party cannot recover speculative, remote, or conjectural damages.” Children’s Broad. Corp. v. Walt Disney Co., 245 F.3d 1008, 1016 (8th Cir. 2001).

“‘Once the fact of loss has been shown, the difficulty of proving its amount will not preclude recovery so long as there is proof of a reasonable basis upon which to approximate the amount.’” Id. (quoting Leoni v. Bemis Co., 255 N.W.2d 824, 826 (Minn. 1977)); see Poppler v. Wright Hennepin Coop. Elec. Ass’n, 834 N.W.2d 527, 546 (Minn. Ct. App. 2013) (“the law does not require mathematical precision”), aff’d, 845 N.W.2d 168 (Minn. 2014). “[A]n award of damages will not be denied merely because of the difficulty of ascertaining them,” and “proof to an absolute certainty is not required.” Bonhiver v. Graff, 248 N.W.2d 291, 304 (Minn. 1976).

This principle is “a result of a choice made as to where a loss due to failure of proof shall fall—on an innocent plaintiff or on defendants who are clearly proved to have been at fault.” Mathews v. Mills, 178 N.W.2d 841, 845 (Minn. 1970). Moreover, a trial court “has broad discretion to determine damages and will not be reversed except for a clear abuse of discretion.” Reiling v. City of Eagan, 664 N.W.2d 403, 407 (Minn. Ct. App. 2003) (quotation omitted).

PRMI ignores long-standing law, and instead relies exclusively on two insurance coverage cases, UnitedHealth Grp., Inc. v. Executive Risk Specialty Ins. Co., 870 F.3d 856 (8th Cir. 2017) (applying Minnesota law), and King’s Cove Marina, LLC v. Lambert Commercial Construction, LLC, 958 N.W.2d 310 (Minn. 2021). According to PRMI (Br. 47-56), these cases established an exhaustive, multi-factor “relative value test,” pursuant to which the apportionment of settlements must always be subjected.

PRMI is incorrect.

As the district court correctly ruled, UnitedHealth and King’s Cove did “not alter long-standing Minnesota law on the allocation of damages, or on the calculation of damages generally.” Add.437. Even in the insurance coverage context, an insured party “need not prove allocation with precision.” UnitedHealth, 870 F.3d at 863. Rather, an allocation need only be reasonable and nonspeculative. Id.; see RSUI Indemn. Co. v. New Horizon Kids Quest, Inc., 933 F.3d 960, 966 (8th Cir. 2019) (applying Minnesota law) (directing district court, on remand, “to allocate ‘as best it can’ [an] unallocated jury award between covered and uncovered claims”); King’s Cove, 958 N.W.2d at 325.

Moreover, contrary to PRMI’s view (Br. 52-53), UnitedHealth and King’s Cove did not establish an exhaustive, multi-factor “relative value test” for apportioning all settlements, thereby working a radical change in Minnesota law. In both cases, the courts were confronted with unallocated settlements, and they had to determine which portion of the settlements fell within the relevant insurance coverage and which portion did not. See UnitedHealth, 870 F.3d at 859-60; King’s Cove, 958 N.W.2d at 323-24. This case is very different for three important reasons.

First, the parties to the bankruptcy did allocate the settlements among RMBS trusts, utilizing the same methodology ResCap applies here—allocated breaching losses. The bankruptcy court approved that allocation as being reasonable and fair to each of the RMBS trusts. Add.371 (citing ResCap.App.96; TE2304-05; TE2328-29; TE2423-25; TE2534-40).

The district court was presented with extensive evidence of the bankruptcy allocation, including from the professional who actually prepared it. See Add.289-91; Add.293-95.

Based on this evidence, the district court properly found that the bankruptcy allocation supported the allocation of damages against PRMI. See Add.371-72.

This is the opposite of UnitedHealth, where there was no contemporaneous allocation, and the insured did not present any non-speculative evidence to allow the factfinder to determine a proper allocation. See Add.439; UnitedHealth, 870 F.3d at 866-67.

Second, unlike with PRMI, there was no suggestion in either UnitedHealth or King’s Cove that the insurance company breached or was in any way responsible for the insured’s damages. The only issue in these insurance coverage cases was whether there was “coverage of a third-party claim under a liability insurance policy.” UnitedHealth, 870 F.3d at 862; see King’s Cove, 958 N.W.2d at
313.

Here, by contrast, the issue is the damage caused by PRMI, which was found to have materially breached its representations and warranties with respect to two- thirds of the loans it originated and sold to RFC. PRMI did not merely agree to indemnify RFC’s liabilities; it caused them. PRMI identifies no Minnesota authority applying a “relative value test” to determine the amount of damages caused by a breaching party.

Third, neither UnitedHealth nor King’s Cove involved the apportionment of liability among multiple defendants. UnitedHealth involved the settlement of two unrelated lawsuits in different jurisdictions, and what portions of the settlement were covered and not covered under a single stack of insurance coverage. 870 F.3d 859-60.

King’s Cove similarly involved the allocation of a single-defendant settlement between a single insurer’s covered and uncovered claims. See 958 N.W.2d at 323.

In cases involving apportioning of a settlement among dozens of responsible parties, in contrast, the Minnesota Supreme Court has recognized “that damages are by nature fact-dependent and that trial courts must be given the flexibility to apportion them in a manner befitting each case.” N. States Power Co. v. Fid. & Cas. Co. of N.Y., 523 N.W.2d 657, 663 (Minn. 1994).

In Northern States, the Minnesota Supreme Court approved of a “pro rata by time on the risk” allocation approach among multiple insurers of a hazardous waste site. Id. In other words, allocation simply based on the length of time a particular insurer provided coverage was sufficient; no other factors were required. See Wooddale Builders, Inc. v. Maryland Cas. Co., 722 N.W.2d 283, 298, 301 (Minn. 2006) (“the allocation of liability between insurers requires a flexible approach,” and “we continue to emphasize that the district courts must be flexible … in responding to different fact situations”); Krause v. Merickel, 344 N.W.2d 398, 403 (Minn. 1984) (“[W]e have affirmed settlement allocations if they appear reasonable in light of the total award to the plaintiffs … and not patently arbitrary.”) (quotation omitted).

In any event, to the extent UnitedHealth and King’s Cove required the district court to assess “relative value,” the court did so correctly in accordance with Minnesota law. As discussed below, the court found that PRMI was responsible for $5.4 million of the $9 billion settlements by considering PRMI’s breach rate and the losses related to the defective loans it originated and sold to RFC.

The court made its findings after weighing fact and expert evidence submitted by both parties regarding how the parties in the bankruptcy allocated the claims (Add.294-95; Add.371-72); how other RMBS settlements have allocated claims (Add.373-74); the strengths and weaknesses of the underlying claims and defenses (Add.376-89); and the propriety and feasibility of factoring certain issues into the allocation in a non-speculative manner (Add.375-76; Add.446-49).

PRMI has failed to demonstrate that any of the court’s factual findings was clearly erroneous.

2. The “Allocated Breaching Loss” Methodology Is Reasonably Certain

As the district court found, ResCap’s “Allocated Breaching Loss” methodology “provides a reliable, non-speculative basis for calculating damages in this case.” Add.440. That model apportioned damages among PRMI and approximately 80 other breaching originators based on

“(1) the amount of breaching loans each sold to RFC,

(2) each originator’s relative breach rate, as compared to the breach rate for a global sample of loans,

and

(3) the discount that RFC achieved in its Settlements.”

Add.440;

see Add.365-69 (detailing ResCap damages expert Dr. Karl Snow’s allocation model).

As the district court determined following extensive expert and fact testimony, “[e]ach of these criteria is concrete and verifiable” and is “based on objective, measurable standards.”

Add.439-40.

PRMI dismisses (Br. 49) Dr. Snow’s allocation model as mere “arithmetic.”

But as the district court correctly found, Dr. Snow is an experienced expert on modeling damages.

Add.364-65.

And, in addition to being based on “concrete and verifiable” criteria and “objective and measurable standards,” Dr. Snow’s analysis was “reasonable and reliable” because:

(1) it is consistent with the approach used by the parties to actually allocate in the Bankruptcy, which was incorporated into the Plan and was approved by the Bankruptcy Court;

and

(2) it is consistent with the approach used in every other major RMBS settlement and approved by courts for each of those settlements.

Add.370.

Consistent with the parties’ approach in the bankruptcy.

The RMBS trustees’ advisor, Duff & Phelps, implemented a breaching loss allocation methodology to allocate the RMBS trust settlements among the trusts in the bankruptcy similar to Dr. Snow’s methodology at trial. Add.294.

Because the RMBS trustees had fiduciary duties to the investors who were actually receiving the proceeds of the settlements under the plan, they had every incentive to fairly allocate liability. Add.372-74.

The district court found that Duff “did an extensive evaluation” of underlying mortgage loans, and used that analysis “‘to determine the best way to allocate [and] the fairest way to allocate’” the RMBS trust settlement.

Add.293-94 (quoting ResCap.App.3).

Indeed, all of the principal parties in the bankruptcy supported the final settlements and allocations that the bankruptcy court approved at the December 2013 confirmation hearing.

Add.371- 72 (citing ResCap.App.96; TE2304-05; TE2328-29; TE2423-25; TE2534-40).13

Consistent with every other major RMBS settlement.

The district court also concluded that ResCap’s Allocated Breaching Loss Approach “is consistent with the approach used in every other major RMBS settlement and approved by courts for each of those settlements.”

Add.439-40; see Add.445.14

As ResCap’s RMBS litigation expert Mr. Hawthorne testified, “[n]o settlement has allocated based on purported differences among trusts in the strength of a statute of limitations defense, the applicable Trust [representations], or any other factors” that PRMI argues should have been considered.

Add.445.

These cases have recognized that allocation based on net losses “is straight-forward and objective and is not susceptible to competing interpretations regarding complex legal or factual issues.”

See In re MASTR Adjustable Rate Mortgs. Tr. 2006-OA2, No. 62-TR-CV-18-35, 2020 WL 8813681, at *27 (Minn. Dist. Ct. Jan. 3, 2020) (approving allocation methodology formulated by Dr. Snow).15

Further, the district court properly rejected PRMI’s argument at trial that Dr. Snow’s allocation model should have incorporated numerous other factors, even though neither the parties to the bankruptcy settlements nor any other RMBS settlements have allocated based on such factors.

As the district court found, both PRMI and its expert, David Woll, “cherry-picked” “self-selected issues … that might favor PRMI’s position.” Add.375.

The court properly found that “adding these additional factors to Dr. Snow’s methodology, as advocated by PRMI, would be infeasible, potentially unfair, and would inject speculation and false precision into the determination of damages.” Add.375.

The court instead properly credited the “uncontradicted” testimony of ResCap’s RMBS litigation expert, Mr. Hawthorne, that trying to assign probabilities to numerous litigation factors would be “speculative and imprecise,” and “neither fair nor reasonable.” Add.391.

The Court also found that “Mr. Hawthorne was the only expert for either party to address other important unresolved issues that were being litigated in RMBS cases as of the Settlement Period and that were being contested in RFC’s Bankruptcy case.” Add.389.

PRMI on appeal all but ignores most of the additional factors it advocated in the district court, focusing mostly (Br. 50-52) on one—the statute of limitations defense discussed in the testimony of its expert, Mr. Woll. The district court, however, questioned Mr. Woll’s objectivity in light of his previous role as an advocate against ResCap in these consolidated actions. Add.386. Nor, in any event, did the district court find Mr. Woll’s testimony persuasive.

The court found that there was uncertainty as to the viability of the statute of limitations defense at the time of the settlements (Add.385), just as there was uncertainty as to other defenses and litigation issues relevant to the RMBS claims against RFC (Add.376- 79; Add.389-90).16 And the court found that Mr. Woll ignored other issues being litigated in RMBS cases at the time of the settlements. Add.389-90.

Only ResCap’s expert Mr. Hawthorne addressed those issues, and the court properly credited his uncontradicted testimony. Add.389 (“Mr. Hawthorne’s testimony demonstrated the significant uncertainty surrounding those myriad issues.”).

PRMI now asserts (Br. 55) that ResCap and Mr. Hawthorne should have just come up with a number for the statute of limitations defense, even if it would be speculative, because Minnesota law does not require “precision.”

But, as PRMI argues, Minnesota law requires a “non-speculative” allocation based on non- speculative evidence. UnitedHealth, 870 F.3d at 863.

And the district court expressly found that assigning probabilities to the various legal issues, including statute of limitations, “would be speculative and imprecise.” Add.391; see Add.389-94; Add.447-48. Indeed, even PRMI’s expert, Justin McCrary, admitted that, where estimates of probabilities are guesswork, he “would have probably approached the problem the way that Dr. Snow did.” Add.393 (citing App.3741).

Finally, as discussed above, experts from RFC’s bankruptcy case who analyzed the underlying claims and the settlements did not differentiate among the RMBS trusts based on individual legal issues (e.g., the strength of a statute of limitations defense). Add.291; Add.294. Nor has any other major RMBS trust settlement. Add.373. The district court properly declined to do so as well.
3. Settled Fraud And Negligence Claims Are Indemnifiable

The district court correctly ruled that the unproven allegations of fraud and negligence against RFC are indemnifiable. See supra Part I.A. Thus any argument

that there must be an allocation as between those purportedly non-indemnifiable claims and indemnifiable claims is unavailing. Add.684 n.39.

C. The District Court’s Evidentiary Rulings On Damages Were Well Within Its Discretion

Contrary to PRMI’s assertions (Br. 56-58), the district court properly excluded an earlier and unapproved iteration of the RMBS trust settlement—the May 2013 Supplemental Term Sheet—as “both irrelevant and untimely.” Add.220. PRMI fails to show any “clear and prejudicial abuse of discretion.” Walker v. Kane, 885 F.3d 535, 538 (8th Cir. 2018) (quotation omitted).

PRMI argues (Br. 56-57) that the Supplemental Term Sheet purported to allocate a $250 million claim to certain trusts that were securitized prior to 2004. As the district court correctly found, however, this purported allocation is irrelevant—and certainly not “evidence from the time of settlement,” as PRMI maintains (Br. 57)—because it was not part of the parties’ final settlement that the bankruptcy court approved over six months later. Add.160-61.

Thus, it is “not the RMBS Trust Claim allowed by the Bankruptcy Court, for which ResCap seeks indemnification in this lawsuit.” Add.219; Add.154-69.17

As the district court correctly ruled, a settlement in bankruptcy is not final or binding until approved by the bankruptcy court. Add.160-61 (citing Am. Prairie Constr. Co. v. Hoich, 594 F.3d 1015, 1024 (8th Cir. 2010) (“[A] bankruptcy court is required to approve any … settlement … before [it] can be deemed effective.”)).

Here, “[a]pproval did not occur until [the bankruptcy judge] issued his Findings of Fact and Confirmation Order in December 2013, allowing the claims on the unambiguous terms that he expressly approved, as set forth in the Chapter 11 Plan.” Add.161.

Those terms did not include the $250 million allocated claim, as PRMI acknowledged. Add.161. The final settlement terms did, however, include an allocation of the RMBS trust claim based on breaching losses—the same approach adopted by the district court here. Add.372.

The district court, moreover, properly struck as untimely the supplemental report of PRMI’s statistical expert, in which PRMI first raised the unapproved allocation from the Supplemental Term Sheet, because it was submitted after the deadline and without leave of the court. Add.220.

The court found PRMI’s sole justification for missing the deadline—that its counsel had not informed its expert of this “fact”—to be “no[t] persuasive” given the lengthy history of these related cases and “the presence of the Supplemental Term Sheet in RFC’s underlying bankruptcy proceedings.” Add.220; see ResCap.App.320-21.

Nor, in any event, has PRMI identified any prejudice from exclusion of the Supplemental Term Sheet. Far from “paint[ing] a distorted picture of the bankruptcy court record” that “focus[ed] solely on how trusts allocated proceeds among themselves” (Br. 57-58), the court properly focused on the settlement, including its allocation, which was agreed to by the parties, incorporated into the plan proposed by RFC and the official creditors’ committee, and approved by the bankruptcy court. See supra 46, 50-51.

III. THE POST-TRIAL RULINGS SHOULD BE AFFIRMED

PRMI identifies no error in the district court’s meticulous 107-page order granting attorneys’ fees, costs, and prejudgment interest. That order comprehensively analyzes the parties’ voluminous submissions, including billing records and summaries, attorney declarations, a declaration of ResCap’s Chief Financial Officer, and dueling expert reports, and reaches a reasonable result that is well within the court’s discretion.

A. The District Court Properly Reviewed Certain Billing Records In Camera

Owing to their privileged content, the parties’ ongoing adversity, and PRMI’s familiarity with the substance of ResCap counsel’s work, among other factors, the district court reviewed certain billing records in camera and permitted ResCap to provide them to PRMI in redacted or summarized form. Add.473-75. The redacted versions totaled over 175 pages (Add.456-58); the summaries identified the biller, date, and amount of time for more than 10,000 entries, omitting only narrative task descriptions (ResCap.App.148; e.g., App.683-92). This approach provided due process.

First, in citing (Br. 65-66) generic statements about due process outside the attorneys-fee context, PRMI ignores that “‘[t]he essential goal in shifting fees … is to do rough justice, not to achieve auditing perfection.’” League of Women Voters of Mo. v. Ashcroft, 5 F.4th 937, 940 (8th Cir. 2021) (quoting Fox v. Vice, 563 U.S. 826, 838 (2011)).

The Supreme Court has accordingly cautioned “that the determination of fees ‘should not result in a second major litigation,’” and that district courts assessing fee requests “need not, and indeed should not, become green-eyeshade accountants.” Fox, 563 U.S. at 838 (quoting Hensley v. Eckerhart, 461 U.S. 424, 437 (1983)).

Indeed, far from having to “identif[y] how much time was spent” on particular tasks, as PRMI repeatedly suggests (e.g., Br. 74), a district court need only provide a “concise but clear explanation of its reasons for the fee award.” Hensley, 461 U.S. at 437.

Further, a district court “may take into account [its] overall sense of a suit, and may use estimates in calculating and allocating an attorney’s time.” Fox, 563 U.S. at 838. “There is no precise rule or formula for making these determinations.” Hensley, 461 U.S. at 436.

Second, contrary to PRMI’s suggestion (Br. 67), the district court was well within its discretion to conduct in camera review of materials that PRMI received in redacted and summarized form. In re Genetically Modified Rice Litig., 764 F.3d 864, 871 (8th Cir. 2014) (“In large cases … reliance on summaries is certainly within the discretion of the district court” (quotation omitted)); Minn. Supply Co. v. Raymond Corp., 472 F.3d 524, 545 n.14 (8th Cir. 2006) (noting defendant was free to dispute fees awarded based on in camera review of time entries, but discouraging that argument because “the District Court has substantial discretion in awarding fees and costs”).

Without acknowledging the foregoing authority, PRMI relies principally on Yamada v. Nobel Biocare Holding AG, 825 F.3d 536 (9th Cir. 2016), where defendants had received no time records whatsoever and plaintiffs were directed to provide redacted records on remand. Id. at 544, 546.

To the extent Ninth Circuit authority is even relevant, the district court correctly ruled (Add.486-87) that the facts here are unlike those in Yamada and closer to those in United States v. Eyraud, 809 F.3d 462 (9th Cir. 2015), which found no due process violation where the defendant had received a declaration “describing the work [counsel] performed … [and] invoice summaries listing the amount of time that work took,” id. at 471.

ResCap has provided at least as much information as in Eyraud. Add.489 (“PRMI has access to the redacted invoices, as well as declarations from Plaintiff’s counsel and ResCap’s CFO describing the work performed and the methodology used to prepare the fee petition.”).18

Third, the district court properly weighed the benefits and costs of in camera review based on its deep familiarity with this litigation. Disclosure of full billing records would have served little or no purpose because “PRMI is well acquainted with all periods of this litigation and can sufficiently glean any redacted activities for which ResCap’s counsel billed,” as it did in its lengthy submissions and oral argument on the fee petition. Add.488-89.

In this respect, there is no basis for PRMI’s suggestion that the district court relied on particular task descriptions as to which PRMI lacked information or access: Half of PRMI’s citations on this issue are passages in which the court exclusively relied on an attorney declaration to which PRMI had full access (Br. 66 (citing Add.500; Add.503; Add.507; Add.513)); the other half are generic recitations of the court’s review of the record (Br. 68 (citing Add.509-12; Add.514)).

On the other hand, as the district court rightly concluded, production of full billing records would have been prejudicial and burdensome, including because of
the parties’ ongoing adversity and the fees required to redact nearly 200 additional invoices and then litigate PRMI’s inevitable disputes about those redactions.

Add.457 (“[T]he burden of providing a privilege log for 175 pages of billing entries outweighs the potential benefit … and certainly … in a case as heavily litigated as this. Moreover, the Court is concerned that a privilege log will not resolve PRMI’s concerns.”).
B. The District Court’s Award Of Attorneys’ Fees And Costs Was Well Within Its Discretion

The district court properly recognized that “the amount of an attorney’s fee award must be determined on the facts of each case” (Hensley, 461 U.S. 424 at 429); the amount of such awards are “within the broad discretion of the district court” (Hanig v. Lee, 415 F.3d 822, 825 (8th Cir. 2005)); and “all relevant circumstances” should be considered in assessing reasonableness, including the non-exclusive factors set forth in Hensley, 461 U.S. at 429-30, 430 n.3 (twelve factors), and Milner v. Farmers Ins. Exch., 748 N.W.2d 608, 621 (Minn. 1971) (six factors). Add.478-80.

The district court analyzed each of those factors in a comprehensive 55-page discussion that drew on not only the parties’ submissions but also the court’s “deep familiarity’ and “in-depth, years-long experience in this litigation.” Add.485. There is no merit to PRMI’s effort to cast that careful assessment as an abuse of discretion. See Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178, 1187 (2017) (fee awards “are entitled to substantial deference on appeal”); Hensley, 461 U.S. at 437 (discretion afforded to district court “is appropriate in view of the district court’s superior understanding of the litigation and the desirability of avoiding frequent appellate review of what essentially are factual matters”).

First, despite acknowledging (Br. 69) that “courts do not apply a rigid proportionality rule,” PRMI’s sole argument (Br. 68) is that the fee award is “disproportionate.”

The district court correctly rejected that “myopic focus on ‘proportionality,’” which “ignores several important considerations,” including

“(1) PRMI’s own disproportionate litigation conduct …;

(2) ResCap’s investment of thousands of hours of sunk costs into this lawsuit and its concern that the outcome of PRMI could impact other pending actions;

and

(3) past awards in Minnesota of ‘disproportionate’ attorney’s fees exceeding the amount of damages.”

Add.532-33; see Green v. BMW of N. Am., LLC, 826 N.W.2d 530, 538 (Minn. 2013) (there is no “dollar value proportionality rule”).

In any event, to the extent proportionality is relevant, the district court correctly compared fees and damages (Add.516-17), which here were $10.6 million and $7.9 million, respectively, as of the date of final judgment (Add.570).

PRMI cites no case that has added costs to the fee amount or subtracted prejudgment interest from the damages amount when assessing proportionality. To the contrary, PRMI’s cited cases exclude costs (e.g., I-Sys. v. Softwares, 2005 WL 1430323, at *14 (D. Minn. Mar. 7, 2005)) and PRMI concedes (Br. 71) that prejudgment interest is “damages.” Nor is PRMI correct (id.) that prejudgment interest “merely compensates for lost use of money”; it also is “intended to encourage settlement,” Adams v. Toyota Motor Corp., 867 F.3d 909, 919 (8th Cir. 2017) (citing Burniece v. Ill. Farmers Ins. Co., 398 N.W.2d 542, 544 (Minn. 1987)).

Second, although the Guides do not make fee- and cost-shifting dependent on the presence of “extraordinary litigation or exceptional circumstances,” the district court correctly recognized that “this litigation was exceptional,” (Add.494 (emphasis added)), including due to its “sheer complexity,” “loan-by-loan nature” (Add.517), and the need to address “issues such as statistical sampling, allocation, structured finance, appraisals, and bankruptcy” (Add.493).

“[T]he very nature of this type of litigation is expensive, complicated, and time-consuming,” and “[t]he bench trial in this case represented the culmination of four years of aggressive, complicated litigation about scores of individual PRMI loans.” Add.494.

Rather than contest those findings, PRMI asserts (Br. 72) that ResCap should have been better at “finding ways” to litigate more cheaply—without ever explaining how—and then states, in contradiction to the district court’s findings but with no supporting facts, that “ResCap’s firms made no such effort” to economize. See Add.498 (finding that “ResCap sought to maximize any efficiencies from the prior litigation” and describing evidence of “ResCap’s streamlined approach”); Add.538 (“ResCap prudently implemented a reduced staffing strategy.”).

PRMI’s bare tallies of the number of hours ResCap’s attorneys worked during various phases of the litigation do not evidence overbilling—they merely evidence the complex, expensive, time-consuming, and exceptional factors the district court identified.

For example, in citing the number of hours ResCap incurred before the beginning of depositions (Br. 72), PRMI neglects to mention the district court’s detailed explanation of ResCap’s work during that four-year period, which included a pre-suit re-underwriting and forensic review; complaint preparation; document discovery and review; loan-level research, disclosures, and re- underwriting preparation; expert discovery preparation, including coordination with five experts on hundreds of loan-level analyses; fact deposition planning and preparation; no fewer than thirteen court appearances; and settlement negotiations. See Add.500-03.

Contrary to PRMI’s argument (Br. 72, 74), the district court was not required to identify how much time or how many dollars of fees ResCap spent on each of these myriad tasks. “PRMI’s invitation to engage in such an accounting comparison would require the Court to don ‘green eyeshades,’” in a context where “‘[t]he essential goal … is to do rough justice.’” Add.538 (quoting Fox, 563 U.S. at 838).

Likewise, it is not true that the district court “gave little consideration” (Br. 72) to efficiencies gained from ResCap’s prior cases: The court described five categories of “time-consuming, case-specific” activities that ResCap needed to undertake; explained that “[e]ach of these activities required numerous underlying case-specific steps,” which the court cataloged; described, at length, many of the “new issues and new evidence in this case”; and discussed the “iron[y] that … when Plaintiff sought to minimize duplicative work from Wave One, PRMI frequently objected to such proposals, citing the unique facts of its case.” Add.494-97.

Third, the court rightly found that “a significant driver for the high amount of ResCap’s attorneys’ fees was the manner in which PRMI conducted its defense,” rejecting “PRMI’s contention that it cannot be ‘blamed’ for ResCap’s attorneys fees” as “especially inapt.” Add.517-18 (citing City of Riverside v. Rivera, 477 U.S. 561, 580 n.11 (“[A defendant] cannot litigate tenaciously and then be heard to complain about the time necessarily spent by the plaintiff in response.” (quotation omitted))); see Green v. BMW of N. Am., LLC, 2014 WL 5800412, at *4 (Minn. Ct. App. Nov. 10, 2014) (defendant’s “unwillingness to accept … any liability,” which was “the primary factor driving up … legal fees,” was relevant to the lodestar analysis).

Contrary to PRMI’s suggestion (Br. 73), the court did not “fault PRMI for ‘aggressively’ defending itself,” but rather for (i) “aggressively challeng[ing]” issues that had a “relatively low or modest financial impact on damages … in ways that were out of proportion to the amounts at issue, thereby driving up ResCap’s attorney’s fees” and (ii) “rearguing numerous issues that were either previously decided in HLC, on very similar facts, or previously decided in the instant case.” Add.518. One example of PRMI’s “disproportionate defense conduct” was its insistence on “discovery, motion practice, expert and fact witness deposition testimony (some … in the midst of trial), and trial testimony,” in a failed effort to dispute breaches on one loan worth “approximately $30,000 in damages.” Add.519 (emphasis added). Given counsel’s hourly rates, which PRMI concedes are reasonable, “PRMI’s outsized approach … increased ResCap’s attorney’s fees exponentially.” Add.520; see Add.520-24 (cataloging other instances in which PRMI “fiercely litigated” failing positions on minor issues through trial).

The district court also properly found, based on its observation of the proceedings, that PRMI’s “poor judgment in relitigating settled issues throughout this litigation significantly drove up ResCap’s attorney’s fees and costs.” Add.529; see Add.528 (describing PRMI’s practice of “routinely reassert[ing] previously- decided issues”); Add.524-29 (cataloging “example[s] of PRMI’s litigation déjà vu”). PRMI’s disproportionate litigation strategy appropriately “carries consequences” (Add.518), particularly in light of the “the plain language of the Guides and the HLC Fee Award” and the fact that “ResCap’s counsel expressly raised the issue at multiple points … in response to PRMI’s litigation tactics” (Add.528-29; see Add.529-32). “Given all of this notice, PRMI cannot credibly express indignation now.” Add.529.

Fourth, the district court identified several other factors supporting its assessment. For example, addressing the “nature and difficulty of the responsibility assumed by counsel,” the court found that “[a]s a court-appointed liquidating trust, ResCap … has been obliged to conduct the litigation in a manner that will maximize its overall recovery” across its scores of actions. Add.499.

Accordingly, the nature of this action and amount at issue from ResCap’s perspective were not merely the direct damages sought from PRMI but also the viability of a $70 million judgment that ResCap had obtained against HLC, which was on appeal at the time of the trial in this case and for six months thereafter (and in which HLC was represented by the same attorneys as PRMI). Add.534.

As another example, the district court (Add.533-34) quoted Cuff v. Trans States Holdings, Inc., 768 F.3d 610 (7th Cir. 2014), in which the Seventh Circuit recognized that an attorneys-fee analysis must consider the “sunk cost” incurred over the course of litigation:

If, after spending $25,000 in legal time, a lawyer is confronted with a defense that will cost $30,000 to defeat, counsel will not say:

“It is irrational to spend $55,000 to get $50,000.” The $25,000 is sunk; if the suit is abandoned the recovery will be zero, so the right question is whether it is reasonable to spend $30,000 more to get $50,000, and the answer is yes. Id.

That analysis is directly relevant here—particularly because PRMI, which had retained its counsel on a flat fee (Add.537), could afford to invest massive amounts of lawyer time on insignificant issues in an effort to force ResCap to abandon meritorious claims. PRMI ignores this issue on appeal.

Finally, PRMI’s arguments about costs (Br. 76) fare no better. The district court assessed the reasonableness of ResCap’s costs in detail (Add.547-60), and the “prior work” that PRMI disputes (Br. 76) was not incurred in “some other case,” but rather for discovery in the consolidated proceeding (In Re: RFC & ResCap Liquidating Trust Litig., No. 13-3451) of which this case was a member from inception through entry of final judgment (see, e.g., Add.243).

C. The District Court Correctly Calculated Prejudgment Interest

The district court was also correct in awarding prejudgment interest pursuant to Minnesota Statute through the date of final judgment. Add.560-66. PRMI wrongly contends (Br. 78) the court should have applied the federal postjudgment interest rate, instead of the state prejudgment interest rate, between the initial and final judgments. As the district court ruled, under governing Minnesota law, prejudgment interest continued to accrue past the date of the initial, non-final judgment, through the date of final judgment. Add.563-66.

State law governs prejudgment interest in diversity actions. Schwan’s Sales Enters., Inc. v. SIG Pack, Inc., 476 F.3d 594, 597 (8th Cir. 2007). Under Minnesota law, prejudgment interest accrues “until judgment is finally entered.” Minn. Stat. § 549.09, subd. 1(a) (emphasis added). “‘Prejudgment interest’ is statutorily prescribed interest accrued either from the date of the loss or from the date when the complaint was filed up to the date final judgment is entered.” Kinworthy v. Soo Line R.R., 841 N.W.2d 363, 367 (Minn. Ct. App. 2013) (cleaned up) (quotation omitted), aff’d, 860 N.W.2d 355 (Minn. 2015).

The district court correctly ruled that “final” judgment could not be entered—and thus prejudgment interest continued to accrue—until the court determined attorneys’ fees, costs, and prejudgment interest. Add.563-65. Although the district court clerk first entered judgment in August 2020, that judgment was not final because it expressly reserved those issues. Add.563.

To be a final judgment, there must be “some clear and unequivocal manifestation by the trial court of its belief that the decision made, so far as the court is concerned, is the end of the case.” Minnesota v. Kalman W. Abrams Metals, Inc., 155 F.3d 1019, 1023 (8th Cir. 1998) (quotation omitted) (applying Minnesota law).

A judgment reserving issues such as fees and interest is not “final.” Parke v. First Reliance Standard Life Ins., 368 F.3d 999, 1002 n.2 (8th Cir. 2004); Am. Fam. Mut. Ins. Co. v. Peterson, 380 N.W.2d 495, 497 (Minn. 1986) (judgment was not

final because it “reserved for later consideration the actual award of attorney fees”).

The district court entered final judgment on April 28, 2021, after determining fees, costs, and interest. Add.571. Relying on Chavez-Lavagnino v. Motivation Educ. Training, Inc., 767 F.3d 744 (8th Cir. 2014), PRMI incorrectly asserts (Br. 77) this judgment was an “amended judgment,” rather than a final judgment.

But Chavez-Lavagnino is inapposite because the judgment there “contain[ed] no such reservation for a determination of attorney’s fees or costs, … and the prevailing parties belatedly move[d] to amend the judgment for attorney’s fees, costs, and prejudgment interest.” Add.564.

Because the initial judgment here was not final, the district court correctly awarded prejudgment interest through the April 28, 2021 final judgment pursuant to Minnesota law.

CONCLUSION

The judgment should be affirmed.

Dated: September 8, 2021

Respectfully submitted,

Donald G. Heeman
Jessica J. Nelson
Randi J. Winter
SPENCER FANE LLP
100 South Fifth St, Ste 2500
Minneapolis, MN 55402
Tel: (612) 268-7000
Fax: (612) 268-7001
dheeman@spencerfane.com
jnelson@spencerfane.com
rwinter@spencerfane.com

/s/ Kathleen M. Sullivan
Kathleen M. Sullivan

K. John Shaffer
Anthony P. Alden
Matthew R. Scheck

QUINN EMANUEL URQUHART & SULLIVAN, LLP
865 S Figueroa St.
Los Angeles, CA 90017
Tel: (213) 443-3000
Fax: (213) 443-3100
kathleensullivan@quinnemanuel.com
johnshaffer@quinnemanuel.com
anthonyalden@quinnemanuel.com
matthewscheck@quinnemanuel.com

Peter E. Calamari
Isaac Nesser

QUINN EMANUEL URQUHART & SULLIVAN, LLP
51 Madison Avenue, 22nd Floor
New York, New York 10010-1601
Tel: (212) 849-7000
Fax: (212) 849-7100
petercalamari@quinnemanuel.com
isaacnesser@quinnemanuel.com
Counsel for Appellee ResCap Liquidating Trust

CERTIFICATE OF COMPLIANCE

1. This document complies with the Court’s June 28, 2021 order on word limits because, excluding parts of the document exempted by Fed. R. App. P. 32(f), this document contains 15,965 words.

2. This document compiles with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type-style requirements of Fed. R. App. P. 32(a)(6) because this document has been prepared in a proportionally spaced typeface using Microsoft Word 2016 in Times New Roman, font size 14.

3. Pursuant to 8th Cir. R. 28A(h)(2), the undersigned further certifies that ResCap’s answering brief have been scanned for viruses and are virus-free.

Dated: September 8, 2021 Respectfully submitted,

/s/ Kathleen M. Sullivan
Kathleen M. Sullivan
Attorney for Appellee ResCap Liquidating Trust

PRMI Reply Brief

OCT 15, 2021 | REPUBLISHED BY LIT: NOV 27, 2021