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WBK Industry News - Litigation Developments

2nd Circuit Revives New York Lawsuit Transferred from Indiana to Reconsider Dismissal Under Indiana Choice of Law Rules

The U.S. Court of Appeals for the Second Circuit recently reversed a New York district court judgment dismissing breach of contract claims brought by the trustee for an investment trust that had purchased a portfolio of mortgage loans.  The Second Circuit remanded for the district court to reconsider what statute of limitations applied under Indiana’s choice of law analysis.

As background, the lawsuit alleged that the seller of a portfolio of mortgage loans had made certain representations and warranties regarding the lack of restrictions that would interfere with the mortgagors’ ability to repay or that would affect the value of the properties securing the loans.  One such loan concerned an Indiana property with use restrictions that allegedly interfered with the mortgagor’s ability to re-let the property when a major tenant left.  The mortgagor defaulted, and the trustee demanded that the seller cure or repurchase the loan.  The seller refused, and the trustee brought suit in the U.S. District Court for the Southern District of Indiana.

On the defendant’s motion, the case was transferred to the Southern District of New York, for lack of jurisdiction over the defendant.  Once there, the plaintiff filed a motion to retransfer the case, back to Indiana, and the defendant filed a motion for judgment on the pleadings, citing New York’s 6-year statute of limitations.  The New York district court held that the Indiana court’s decision was not “clearly erroneous.”  As a result, New York’s choice-of-law analysis applied, and the court dismissed the case pursuant to New York’s 6-year statute of limitations.

On appeal, the Second Circuit found that jurisdiction over the defendant in Indiana was proper, and the original transfer for lack of jurisdiction was an error, whether “clearly erroneous” or not.  It did not transfer the case back to Indiana, and instead found the transfer to New York proper as a permissive transfer for the convenience of the parties.  However, because the case had been brought properly in Indiana, the Second Circuit reversed the dismissal and remanded to the Southern District of New York for reconsideration under Indiana’s choice-of-law analysis.