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RTC Mortgage Trust 1994 N-1 v. Fidelity National Title Insurance Company

16 F. Supp.2d 557 (D. N.J. 1998)

ATTORNEYS; OPINION LETTERS—Absent an express reservation of a malpractice claim by the FDIC or RTC, a assignment of a loan and mortgage by those agencies conveys all such claims against an opining attorney even if New Jersey law would not permit assignment of such tort claims.

A bank made a mortgage loan. It was represented by a Pennsylvania law firm which issued a legal opinion with respect to the mortgage and loan. Among other things, the opinion stated that “the mortgage, security agreement, and financing statements are effective to create a first lien security interest in the ... property.” Following the commencement of foreclosure proceedings against the mortgagee, a Bankruptcy Court determined that another bank’s liens had priority. During the pendency of the bankruptcy proceedings, the lender was placed into receivership by the Resolution Trust Corporation (RTC). Eventually, the RTC sold various assets, including the mortgage at issue. Then a claim was made against the lender’s attorneys for negligence in rendering their legal opinion. In response, the law firm argued that the then holder of the mortgage and loan had never been assigned the right to bring the negligence or legal malpractice claim against the law firm because the RTC reserved for itself the right to prosecute such claims. The law firm also argued that the holder did not own the claim against the law firm and that the RTC could not have assigned its right to bring a tort claim against the law firm in light of established New Jersey law that tort claims are not generally assignable before being reduced to judgment.

The Court analyzed the assignment agreement from the RTC to its assignee. One question was whether the RTC reserved its rights to sue anyone who had caused a loss to it or any predecessor of it. In the Court’s view, once the RTC assigned the loan, the law firm was not a person who had caused a loss to the RTC. Consequently, the RTC did not retain the claim. In this respect, the assignment made clear that the “retention of claims” section was not intended to prevent the assignee from enforcing the mortgage and loan and realizing the benefits of the related notes. The Court also rejected the law firm’s contention that the assignee did not own the claim against the law firm. In the Court’s view, the assignment language was extremely broad and the RTC had assigned all of its right, title and interest in the mortgage and the loan and all things associated with the mortgage and loan. With respect to the issue concerning New Jersey’s law governing assignment of tort claims, the Court assumed that New Jersey law would prohibit such an assignment. Thus, if federal law did not preempt New Jersey law, the claim could not be brought against the law firm. To find out whether preemption was operative, the Court analyzed the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and found that Congress had, as a major goal, the establishment of organizations and procedures to obtain and administer the necessary funding to resolve failed thrift cases and to dispose of the assets of those institutions. In doing so, it granted the FDIC and the RTC sweeping powers to dispose of assets. Specifically, it granted the RTC the power to transfer any assets and liability of an institution in default without requiring any approval, assignment, or consent to such transfer. All in all, the Court was convinced that Congress intended to give wide breadth and all-inclusiveness to the FDIC and the RTC to accomplish FIRREA’s goals. Consequently, when the Court found that New Jersey’s rule against the assignability of tort claims stood as a substantial obstacle to the accomplishment of Congress’ purposes, it set it aside. Otherwise, the New Jersey rule would meaningfully frustrate, among other powers, the RTC’s broad powers to transfer and realize the assets of defaulting institutions.


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