ResCap Liquidating Trust v. Primary Residential Mortgage

United States Court of Appeals
For the Eighth Circuit
___________________________

No. 21-2139
___________________________

ResCap Liquidating Trust

lllllllllllllllllllllPlaintiff - Appellee

v.

Primary Residential Mortgage, Inc.

lllllllllllllllllllllDefendant - Appellant
____________

Appeal from United States District Court
for the District of Minnesota
____________

Submitted: February 15, 2022
Filed: February 2, 2023
____________

Before LOKEN, COLLOTON, and SHEPHERD, Circuit Judges.
____________

LOKEN, Circuit Judge.

The majority of U.S. residential mortgages are financed by a “securitization”
process in which mortgage lenders (originators) obtain funds to make future mortgage
loans by pooling large numbers of existing loans and selling them to a trust. The trust
acquires a right to receive the stream of future mortgage payments, which it then
parcels into certificates that are sold to investors, called certificate holders, with the
mortgage loans serving as collateral for the certificates. See BlackRock Fin. Mgmt.
Inc. v. Segregated Account of Ambac Assur. Corp., 673 F.3d 169, 173 (2d Cir. 2012),
and cases cited. The market for residential mortgage-backed securities (“RMBS”)
boomed after 2003, but the 2008 financial crisis had a profound negative effect on
U.S. real estate and credit markets. This appeal is one small part of the RMBS
financial havoc that followed.

I. The Preamble

In the decade leading up to the 2008 crisis, Residential Funding Company,
LLC (“RFC”), an affiliate of Ally Financial, Inc., was a middleman or “sponsor” in
the RMBS market, purchasing mortgage loans from hundreds of originators and
selling them in pools to hundreds of trusts for securitization. Each securitization
process began with RFC entering into an Assignment and Assumption Agreement
with a depositor entity in which RFC made representations and warranties concerning
the individual loans in the pool. The depositor then sold the loans to RMBS Trusts
in Pooling and Servicing Agreements that assigned RFC’s representations to the
trusts and often contained additional loan-level representations. RFC also contracted
with four “monoline” insurers (the “Monolines”) to insure principal and interest
payments on some of the RMBS certificates in contracts in which RFC warranted that
representations made to the RMBS Trusts were true.

Prior to 2008, Primary Residential Mortgage, Inc. (“PRMI”), a Nevada
corporation, was an originator that sold mortgage loans to RFC in transactions
governed by two “Client Contracts,” one entered into in March 2000 and another in
June 2001. The contracts incorporated the terms of RFC’s more detailed “Seller
Guides.”1 The Guides required PRMI to make specific representations and warranties

1
The March 2000 contract incorporated a version of the Guides called the
AlterNet Guide, which governed loans sold from March 2000 to June 2001. The June
2001 Client Contract incorporated a newer version, the Client Guide, which governed
all subsequently sold loans.

-2-
about the characteristics and underwriting of the loans being sold, and gave RFC
broad remedies for an Event of Default,2 including repurchase and indemnification.
Between 1999 and 2007. PRMI sold over 2,300 loans to RFC.

After the housing market collapse in 2008, loans underlying RFC
securitizations began defaulting at a high rate, leading to significant losses to trust
investors and the Monolines. They began suing RFC and its affiliates, alleging
breach of RFC’s representations and warranties and misrepresentation. Groups of
RMBS Trust investors also threatened RFC with litigation. In May 2012, RFC filed
for Chapter 11 bankruptcy protection in the Southern District of New York. In the
Chapter 11 proceedings, RMBS trustees filed hundreds of claims for over 1,000
securitization trusts against the Chapter 11 estate, and the Monolines filed their own
proofs of claim. The day before filing, RFC entered into a settlement agreement with
RMBS Trust investor groups resolving claims by 392 RMBS Trusts created between
2004 and 2007. RFC sought bankruptcy court approval of the pre-bankruptcy
settlement. Parties not included in the agreement, including RMBS trusts, objected.

After months of litigation and mediation, the parties to the Chapter 11
proceeding agreed to a Plan Support Agreement and submitted a proposed Final
Chapter 11 Plan (the “Plan”), which included an unallocated allowed claim of $7.091
billion for all RMBS Trusts, a $209.8 million allowed claim against RFC’s affiliate
GMAC Mortgage, and allowed claims for each of the Monolines. The bankruptcy
court approved the Plan and the underlying settlements in a December 2013 order.
The Plan included creation of ResCap Liquidating Trust (“ResCap”), a Delaware

2
Section A210 of the October 1, 2001 Client Guideline (Def. Trial Ex. 18)
broadly defined “Events of Default” to include PRMI breaches of any representation
or warranty, failure to perform its obligations under the Client Guide, false
representations to GMAC-RFC, failure to provide complete and accurate information,
as well as false representations and failure to provide complete and accurate
information by the loan borrower or anyone involved in the loan or its underwriting.

-3-
statutory trust, to pursue indemnification claims against originators such as PRMI and
to distribute any recoveries as assets of the Chapter 11 estate to RMBS Trusts,
Monolines, and other creditors.3 To facilitate distribution, the RMBS Trusts and
Monolines exchanged their allowed claims for units in the liquidating trust entitling
them to payments if ResCap recovered damages.

In 2013, ResCap began suing originators for indemnification. In 2015, the
“First Wave” of suits were consolidated in the District of Minnesota before Judge
Susan Richard Nelson. In August 2018, Judge Nelson issued her lengthy Common
SJ Order, resolving many common issues in ResCap’s favor. Following this Order,
only one First Wave case proceeded to trial. The jury returned a verdict in favor of
ResCap, and the district court entered judgment for $42.7 million in damages and
prejudgment interest and $18 million in attorney’s fees. See In re RFC & ResCap
Liquid. Tr. Action, 399 F. Supp. 3d 827, 862 (D. Minn. 2019).

II. This Lawsuit

With First Wave proceedings ongoing, ResCap began filing “Second Wave”
suits in the District of Minnesota, including this action against PRMI in December
2016. ResCap again asserted breach of contract and indemnification claims, seeking
to recover a portion of the allowed bankruptcy claims for those holding units in the
liquidating trust. Assigned most Second Wave cases, Judge Nelson stayed the cases

3
The district court described the complex bankruptcy settlement process in
detail in its initial published opinion dealing with ResCap’s breach of contract and
indemnification claims against originator defendants. See In re RFC and ResCap
Liquidating Tr. Action, 332 F. Supp. 3d 1101, 1122-26 (D. Minn. 2018) (“Common
SJ Order”). As will become apparent, of great importance in resolving this appeal is
the court’s ruling, as a matter of law, “that ResCap has met its burden of proving that
the Bankruptcy Settlements at issue were reasonable and entered into in good faith.”
Though PRMI raises numerous issues on appeal, it does not challenge this ruling.

-4-
pending resolution of the pending First Wave summary judgment motions and the
single First Wave trial. After she lifted the stay, most Second Wave cases quickly
settled. By August 2019, PRMI was the only remaining defendant. Again
responding to cross motions, Judge Nelson issued a 97-page order resolving summary
judgment issues, adhering to her resolution of common issues in Common SJ Order.
See In re ResCap Liquidating Tr. Litig., 428 F. Supp. 3d 53 (D. Minn. 2019) (“PRMI
SJ Order”). The Second Wave case against PRMI then proceeded to a 13-day bench
trial in February and March 2020.

In its summary judgment orders, the district court ruled that ResCap may use
statistical loan sampling in proving its claims for liability and damages, observing
that “[e]stablishing liability and damages in this case without the use of sampling
would be unmanageable.” Common SJ Order, 332 F. Supp. 3d at 1150; see PRMI SJ
Order, 428 F. Supp. 3d at 131-33. At trial, ResCap sought relief for 539 “at-issue”
PRMI loans, defined as a loan included in the RMBS Trust settlement that, as of May
2013, had $500 or more of losses or was 90 or more days delinquent, in foreclosure,
or real-estate owned. Steven Butler, ResCap’s reunderwriting expert, testified that
he thoroughly reviewed 157 loans that PRMI sold to RFC and concluded that 101
materially breached contractual representations to RFC required by the Client
Contract and Seller Guides, including 50 loans that contained “misrepresentations of
either debt, income, occupancy or employment.”

Dr. Karl Snow, ResCap’s damages expert, testified regarding PRMI’s proper
share of liability for the large RMBS Trust and Monoline bankruptcy settlements,
using what he termed the “allocated breaching loss methodology” to estimate
indemnifiable losses that RMBS Trusts and Monolines suffered because of PRMI
breaches. Dr. Snow’s analysis proceeded in four steps, which he conducted
separately for the RMBS Trusts and the Monolines.

-5-
 First, starting with the RMBS trusts, Dr. Snow calculated a total of $40.3
billion in losses on the ResCap loans in the RMBS trusts. Second, using Butler’s re-
underwriting of a random sample of 410 loans from the overall at-issue population,
Dr. Snow determined that 59.7%, or $24 billion, of the $40.3 billion in overall losses
were caused by loans that materially breached both the Client Guides and the Trust
Agreement (“breaching loans”). Dr. Snow calculated the $24 billion in breaching
losses based on Butler’s determination that 265 of the 410 re-underwritten loans were
breaching loans. Third, Dr. Snow determined the overall “settlement factor” -- the
“discount” RFC received for the bankruptcy settlement -- was of 28%. Finally, Dr.
Snow repeated steps one and two for a loan population limited to the 539 PRMI at-
issue loans. Based on expert Butler’s reunderwriting of a 150-loan sample of these
loans, Dr. Snow calculated there were $35.7 million of total trust losses, a 50.9%
breach rate, and therefore $18.2 million in total breaching losses on PRMI At-Issue
Loans. Applying the 28% settlement factor, Dr. Snow testified that PRMI’s allocated
share of the RMBS Trust Settlement was $5.1 million.

Using essentially the same methodology, Dr. Snow testified that PRMI’s
allocated share of the Monoline Settlements was $401,000. Deducting $100,000 for
statistical imprecision, Dr. Snow estimated that the “most likely and conservative
estimate” of PRMI’s share of the settlements was $5.4 million. Overruling PRMI’s
objections, the district court approved Dr. Snow’s damages methodology, finding it
reasonable and nonspeculative. PRMI did not offer a competing damages model.

After the trial, the district court issued its 210-page Findings of Fact and
Conclusions of Law in August 2020. The court concluded that ResCap had
established by a preponderance of the evidence each element of its contractual
indemnification claim -- existence of a contract (the Client Contract and Guides); that
PRMI breached the contract; its breaches were a contributing factor in causing RFC
losses, damages, or liabilities within the scope of the contractual indemnity; that the
bankruptcy settlements for which RFC sought indemnification were reasonable and

-6-
entered into in good faith; and the amount of reasonably certain and non-speculative
damages ResCap is entitled to recover. The court accepted the damages allocation
methodology of Dr. Snow and entered judgment in favor of ResCap for $5.4 million
in damages. After further briefing, the court awarded ResCap $10.6 million in
attorney’s fees, $3.5 million in costs, $2 million in prejudgment interest, and
$520,212 in what it termed “post-award prejudgment interest” for the period between
entry of judgment and the order awarding attorney’s fees, costs, and prejudgment
interest.

PRMI appeals the district court’s final judgment, arguing numerous issues in
three main categories: (i) the interpretation of the underlying contracts between
PRMI, RFC, the RMBS Trusts, and the Monolines; (ii) the allocation of multi-party
damages to PRMI; and (iii) the post-trial award of fees, costs, and interest. We
remand for a recalculation of postjudgment interest but otherwise affirm.

III. Contractual Issues

A. The “Sole Discretion” Issue. The Client Guide indemnification provision
at issue, Section A212, required PRMI to indemnify RFC for “all losses, damages
[etc.] resulting from any Event of Default” (emphasis added). Section 113(B) of the
Client Guide, part of the Guide’s General Rules of Interpretation not found in the
earlier AlterNet Guide, provided:

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 discretion.

At summary judgment, ResCap argued this provision gave it sole discretion to
determine whether PRMI committed an “Event of Default” for indemnification

-7-
purposes. PRMI disagreed, arguing that Section 113(B) in the Client Guide “is not
an independent grant of power,” and the indemnification provision, Section A212,
lacks a grant of this power. The district court granted ResCap summary judgment on
this issue, relying on its previous interpretation in the Common SJ Order that the
Client Guide’s unambiguous grant of “sole, unreviewable discretion to make
determinations of fact” includes whether “an Event of Default has occurred.” PRMI
SJ Order, 428 F. Supp. 3d at 92, citing Common SJ Order, 332 F. Supp. 3d at 1153.

PRMI appeals that ruling, making the same textual arguments and arguing that
it should have been allowed to challenge Butler’s breach determinations for the loans
sold under the Client Guide that he sampled. We have seen this issue before. In
Residential Funding Co., LLC v. Terrace Mortgage Co., 725 F.3d 910 (8th Cir. 2013),
RFC sued to enforce its repurchase remedy after RFC declared an Event of Default
regarding thirteen purchased loans and the originator refused RFC’s repurchase
demands. As in this case, the repurchase provision of the Client Guide required the
originator to repurchase a loan “[i]f []RFC determines that an Event of Default has
occurred,” and the Client Guide gave RFC “‘sole discretion’ to determine whether an
Event of Default has occurred.” Id. at 916. The district court enforced that provision,
and the originator appealed, arguing this interpretation “renders most of the contract
surplusage,” and makes the contract unenforceable for lack of consideration and
unconscionability. Id. at 916-17. We affirmed, concluding “[t]here is nothing
ambiguous about this [sole discretion] language.” Id. at 916. Under Minnesota law,
“Terrace cannot contract away judicial review by granting [RFC] the exclusive right
to determine an ‘Event of Default’ has occurred, only to later ask a court to
independently review [RFC’s] determination.” Id. at 915-16.

PRMI argues that our ruling in Terrace Mortgage is not controlling because the
indemnification provision, Section A212, lacks a sole discretion provision and the
interpretive provision in Section 113(b) is not an independent grant of power but is
instead limited to “[w]henever any provision of this Client Guide contract requires

-8-
[]RFC to make a determination of fact.” Construing these remedial provisions “in the
context of the entire contract,” as Minnesota law requires, see Quade v. Secura Ins.,
814 N.W.2d 703, 705 (Minn. 2012), we disagree.

The Client Guide gives RFC (and therefore ResCap) two interrelated remedies
in the event of an originator default, repurchase and indemnification. We held in
Terrace Mortgage that RFC may seek the affirmative remedy of demanding the
originator repurchase a loan when RFC determines, in its sole discretion, “that an
Event of Default has occurred with respect to a specific loan.” 725 F.3d at 916, citing
Client Guide Section A210(A). But it was not required to seek that remedy. Rather,
Section A210(A) provided:

Where []RFC determines that repurchase of a Loan and/or the servicing
is not appropriate, the Client shall pay []RFC all losses, costs and
expenses incurred by []RFC . . . as a result of an Event of Default.

Here, given the overwhelming number of defaulted securitized loans following the
2008 market collapse that forced RFC into bankruptcy, it determined (or was forced
to determine) that PRMI repurchasing the defaulted PRMI loans “is not appropriate.”
This was the affirmative “determination of fact” that PRMI erroneously asserts is
lacking. And this is a logical interpretation of these alternative remedies. It would
make little sense to allow ResCap to conclusively determine an Event of Default for
repurchase, but not for the alternative indemnification remedy. Therefore, our
interpretation of sole discretion in Terrace Mortgage is controlling even if the general
interpretation in Section 113(b), standing alone, would not govern this issue. We
conclude the Client Guide gave RFC, and therefore ResCap, the sole discretion to
determine an Event of Default for indemnification purposes. We need not and do not
consider the district court’s broader ruling that RFC has “sole unreviewable discretion
to make determinations of fact” in all circumstances. See PRMI SJ Order, 428 F.
Supp. 3d at 92 (quoting Common SJ Order, 332 F. Supp. 3d at 1153).

-9-
 B. Indemnification for Negligence and Fraud Claims. ResCap claims that
PRMI is contractually obligated to indemnify the Chapter 11 claimants ResCap
represents for a share of the RMBS Trust and Monoline claims allowed in the RFC
bankruptcy settlements. The parties do not dispute that Minnesota law applies to the
interpretation of the Client Contracts between PRMI and RFC, including the
incorporated Seller’s Guides, as well as to RFC’s indemnity claim. The claims by the
RMBS Trusts and Monolines that RFC settled included allegations that, when selling
loans to the RMBS Trusts, RFC knew or should have known of breaches of the
Mortgage Loan Representations and Warranties and that the mortgage loans did not
comply with the Mortgage Loan Representations and Warranties. Thus, indemnitee
ResCap seeks indemnification for claims based at least in part on its own negligence.
“When applying Minnesota law, we strictly construe indemnification agreements that
shift liability for the indemnitee’s own negligence. An indemnification provision will
only be enforceable if its language is clear and unequivocal.” Harleysville Ins. Co.
v. Physical Distrib. Servs., 716 F.3d 451, 457 (8th Cir. 2013) (quotation and citations
omitted).

On appeal, PRMI argues the district court misinterpreted the indemnification
provision and misapplied Minnesota law when an indemnitee seeks to recover for its
own negligence. In DeWitt v. London Road Rental Center, 910 N.W.2d 412 (Minn.
2018), the Supreme Court of Minnesota held that, for a contract to allow
indemnification for the indemnitee’s own negligence, it must:

use express language that clearly and unequivocally shows the parties’
intent to transfer liability. . . . The test is therefore not whether the
language of an indemnity clause is so broad that it necessarily includes
the indemnitee’s own negligence. . . . Rather, the proper test is whether
the clause includes specific language that expressly shows . . . that the
parties intended the clause to obligate the indemnitor to indemnify the
indemnitee for the indemnitee’s own negligence.

-10-
Id. at 416-17 (Minn. 2018) (emphasis in original) (quotation omitted); see Farmington
Plumbing & Heating Co. v. Fischer Sand & Aggregate, Inc., 281 N.W.2d 838, 842
(Minn. 1979). Thus, this issue requires a close look at the applicable indemnification
provisions in RFC Guides, which were materially identical for all the loans at issue.

Section A202 of the Guides set forth General Rules of Interpretation which
included Section A202(II), entitled Loan Securitization:

The Client recognizes that it is GMAC-RFC’s intent to securitize some
or all of the Loans sold to GMAC-RFC by the Client. . . . The Client
agrees to indemnify and hold GMAC-RFC harmless from and against
any loss, damage, penalty, fine, forfeiture, court cost, reasonable
attorneys’ fees, judgment, cost, fee, expense or liability incurred by
GMAC-RFC as a result of any material misstatement in or omission
from any information provided by the Client to GMAC-RFC; or from
any claim, demand, defense or assertion against or involving GMAC-
RFC based on or grounded upon, or resulting from such missatement or
omission or a breach of any representation, warranty or obligation made
by GMAC-RFC in reliance upon such misstatement or omission.

Section A210(A), part of the repurchase provisions, provided:

Where []RFC determines that repurchase of a Loan and/or the servicing
is not appropriate, the Client shall pay []RFC all losses, costs and
expenses incurred by []RFC . . . as a result of an Event of Default.

Section A212, entitled Indemnification, provided:

The Client shall indemnify GMAC-RFC from all losses, damages,
penalties, fines, forfeitures, 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 (i) any act or failure to act, (ii) any breach of warranty, obligation

-11-
 or representation contained in the Client Contract, (iii) any claim,
demand, defense or assertion against or involving GMAC-RFC based on
or resulting from such breach, (iv) any breach of any representation,
warranty or obligation made by GMAC-RFC in reliance upon any
warranty, obligation or representation made by the Client contained in
the Client Contract and (v) any untrue statement of a material fact,
omission to state a material fact, or false or misleading information
provided by the Client in information required under Regulation AB or
any successor regulation.

In granting ResCap summary judgment on this issue, the district court adhered
to its prior ruling that these provisions clearly and unequivocally state that PRMI
agreed to indemnify RFC for any claim based on “a breach of any representation,
warranty or obligation made by []RFC in reliance [on PRMI’s] misstatement or
omission.” 428 F. Supp. 3d at 98 (alteration in original) (quoting Common SJ Order,
332 F. Supp. 3d at 1133). We agree. The at-issue claims in the bankruptcy
settlements “result[ed] from” breaches of representations that RFC made in
securitizing mortgage loans in reliance upon representations and warranties made by
PRMI when it sold the loans to RFC knowing of RFC’s intent to securitize. Thus, the
claims were “incurred by []RFC . . . as a result of an Event of Default.” Given RFC’s
central role in the securitization process, it was foreseeable to originators such as
PRMI that investors suing for losses resulting from RFC as middleman or sponsor
acting in reliance on PRMI’s misrepresentations would include negligence claims that
RFC knew or should have known of PRMI’s default, as well as breach of contract and
warranty claims. In these circumstances, it is obvious the Guide’s indemnification
provisions “fairly apprise[d]” PRMI of its obligation to indemnify RFC for all of
these claims. DeWitt, 910 N.W.2d at 417 (quotation omitted); see Johnson v.
McGough Construction Co., 294 N.W.2d 287, 288 (Minn. 1980).

PRMI further argues that indemnification of fraud claims should be treated
differently based on the Minnesota Supreme Court’s long disfavor of indemnifying

-12-
a party for its own fraud. PRMI argues that the Guides require indemnification for
claims resulting from representations made “in reliance” on PRMI’s representations,
which precludes fraud claims because fraud requires “knowledge” of falsity. The
district court rejected this contention in its summary judgment order because “in the
absence of a judgment or finding of intentional conduct on the part of the indemnitee
(i.e. RFC) -- a finding indisputably absent here -- mere claims of intentional
misconduct, denials of motions to dismiss fraud claims, or acknowledgment by RFC
of the potential risk of a fraud judgment were insufficient to create a threshold finding
that RFC engaged in fraud or other intentional misconduct for indemnification
purposes.” PRMI SJ Order, 428 F. Supp. 3d at 98-99, citing Common SJ Order, 332
F. Supp. 3d at 1135-37. On the facts of this case as further developed at trial, again
we agree.

C. Proof of RFC Breaches. The Client Guide indemnification provision
provided that PRMI must indemnify RFC for “all losses [etc.] resulting from any
Event of Default,” including “any breach of any representation, warranty or
obligation made by []RFC in reliance upon any warranty, obligation or representation
made by [PRMI].” The district court determined that this required ResCap to show
PRMI’s breaches were a “contributing cause” of the RMBS Trust and Monoline
claims. PRMI SJ Order, 428 F. Supp. 3d at 102-03 (citing Common SJ Order, 332
F. Supp. 3d at 1163-65). PRMI does not challenge the contributory causation
standard on appeal. After trial, the court’s Conclusions of Law held that ResCap
needed only to show that “PRMI’s breaches increased RFC’s risk of liability on the
RMBS Trust and Monoline Claims that were settled in Bankruptcy.” PRMI argues
this was error because a claim for indemnification of “a breach of any representation,
warranty or obligation made by []RFC,” required ResCap to prove an actual breach,
not just an increased risk of liability. We disagree.

As the district court noted, PRMI’s interpretation of the contributing cause
standard would “turn this trial into the very loan-by-loan repurchase trial obviated by

-13-
the bankruptcy settlements.” Under well-established Minnesota law, pretrial
settlement of an indemnitee’s own liability to third parties does not defeat an
indemnitee’s claim for contractual indemnity if the settlement was made “under just
terms,” in which case the indemnity claimant “would recover less if he settled for
less.” Minneapolis Mill Co. v. Wheeler, 16 N.W. 698, 699 (Minn. 1883); see Miller
v. Shugart, 316 N.W.2d 729, 735 (Minn. 1982); Osgood v. Med., Inc., 415 N.W.2d
896, 903-04 (Minn. App. 1987) (“[T]he party seeking indemnification must show
[that a pretrial] settlement was reasonable and prudent.”). Here, reasonable, good-
faith bankruptcy settlements gave the RMBS Trusts and Monolines global claims for
RFC’s breaches which ResCap is pursuing against multiple originators. PRMI as
indemnitor cannot be liable for more than its appropriate share of RFC’s total liability
to the Trusts and Monolines, but Minnesota law does not compel ResCap, acting on
behalf of the Trusts and Monolines, to prove RFC’s breaches on an unmanageable
loan-to-loan basis that the settlements enabled the settling parties to avoid. See Neth.
Ins. v. Main St. Ingredients, LLC, 745 F.3d 909, 913 (8th Cir. 2014).

D. RFC Representations. PRMI argues the district court misinterpreted what
PRMI refers to as “pool-wide” representations RFC made to RMBS Trusts and the
Monolines, and a representation in many trust agreements that, “to the best of RFC’s
knowledge . . . there is no default . . . existing under the terms of any Mortgage Note
or Mortgage.” We have carefully considered these contentions and conclude they are
without merit for the reasons explained at length by the district court. See Findings
& Conclusions 425-429. Regarding the “pool-wide” representations, the court
properly relied on the context of the representations in the agreements, and on
ResCap witness testimony about the understanding of the provisions at the time of the
contracts. Regarding the “best of knowledge” issue, we agree with the district court
that ResCap as a settling indemnitee only needed to show that “it could have been
liable” if the RMBS Trusts or Monolines proved that “RFC knew or should have
known” about defaults on the underlying loans. Neth. Ins., 745 F.3d at 913.

-14-
 IV. Damages Issues

ResCap faced the daunting task of proving PRMI’s share of the indemnifiable
liabilities RFC incurred in its settlements with the RMBS Trusts and the Monolines.
The district court labeled this task the RMBS Trust and Monoline Settlement
Allocations. As explained above, ResCap began by limiting the PRMI loans at-issue
to 539 of the 2300 loans PRMI sold to GMAC-RFC. The limiting criteria were loans
that had $500 or more of losses or were 90 or more days delinquent, in foreclosure,
or real-estate owned. Next, ResCap determined a 28% settlement factor for the global
settlement. This comports with Minnesota law -- an indemnitee that reasonably
settled its liability to third parties may recover from the indemnitor its actual loss, or
the amount paid in settlement, whichever is less. Minneapolis Mill Co., 16 N.W. at
699. Then, Dr. Snow applied this 28% settlement factor to 50.9% of the total
breaching losses -- PRMI’s breach rate as determined by expert Butler’s
reunderwriting – and opined, with adjustments not at issue, that the “most likely and
conservative estimate” of PRMI’s fair share of the RFC’s bankruptcy settlement
liability is $5.4 million.

The district court thoroughly reviewed the methodologies of experts Butler and
Snow and carefully considered PRMI’s thorough cross examination of these experts
and the contrary opinions of PRMI’s experts. The court concluded that ResCap’s
allocated breaching loss approach was consistent with Minnesota contractual
indemnity law when damages must be apportioned among multiple defendants; that
it was approved by the bankruptcy court as fair and reasonable to each trust and its
investors; and that it is consistent with other court-approved RMBS settlements,
whereas PRMI’s objections “invite unfairness, speculation, and false precision.” The
court also found that Dr. Snow’s calculation of damages was reasonable and non-
speculative and his estimate of $5.4 million “is the appropriate measure of damages.”
We review a district court’s award of damages for abuse of discretion. See Agrifund,
LLC v. Heartland Co-op., 8 F.4th 660, 666 (8th Cir. 2021). No doubt hoping to

-15-
side-step this deferential standard of review, PRMI argues the district court “erred in
its rulings on allocation of the settlements.”

A. First, PRMI argues that, because the bankruptcy court’s confirmation order
discharged RFC from prior claims and liabilities, the bankruptcy court “extinguished”
those claims and therefore ResCap may only seek indemnity for what RFC actually
paid in bankruptcy, approximately $810 million. On its face, the argument seems
preposterous -- the bankruptcy settlements transferred to RMBS Trust and Monoline
claimants RFC’s right to seek indemnification from originators such as PRMI. To call
this “extinguishing” those claims is ludicrous.

The argument gets no life support from the cases on which PRMI relies. They
simply stand for the general proposition that a debtor may not seek indemnity for a
discharged obligation or for money not actually paid. The district court’s summary
judgment orders determined that the Guides’ indemnification provisions applied to
RFC’s liabilities, not just its actual losses, and thus ResCap could pursue indemnity
on the allowed claims. See PRMI SJ Order, 428 F. Supp. 3d at 93-97 (citing
Common SJ Order, 332 F. Supp. 3d at 1158-62). We agree. The Plan transferred all
RFC assets, including “Causes of Action” such as indemnity claims, to the liquidating
trust. The bankruptcy parties submitted a Plan Supplement that listed ResCap’s
“Causes of Action,” including a claim against PRMI. Obviously, there was no intent
to “extinguish” underlying originator liabilities. Cf. Trapp v. R-Vec Corp., 359
N.W.2d 323, 327 (Minn. App. 1984).

B. Second, PRMI argues the district court erred in allocating a share of RFC’s
total liability to PRMI without requiring ResCap to account for the “relative value”
of the various claims by RMBS Trusts and Monolines against RFC. The argument
is based on two cases involving indemnity claims by an insured seeking to recover
from its liability insurer the unallocated amounts paid to settle multiple covered and
uncovered third party claims.

-16-
 In UnitedHealth Group Inc. v. Executive Risk Specialty Ins. Co., 870 F.3d 856
(8th Cir. 2017), the insured sought indemnification from an excess liability insurer
for a $350 million unallocated settlement of two separate suits, only one of which was
covered under the policy. Id. at 860-62. We held that UnitedHealth did not meet its
prima facie burden to prove coverage under Minnesota law because it failed “to
allocate the settlement between the potentially covered AMA suit and the non-covered
Malchow suit with enough specificity to permit a reasoned judgment about liability.”
Id. at 863. In King’s Cove Marina, LLC v. Lambert Com. Construction LLC, 958
N.W.2d 310 (Minn. 2021), another case in which an insured sought insurer indemnity
for the settlement of multiple unallocated claims, the Supreme Court of Minnesota
cited UnitedHealth and adopted “a similar allocation test.” Id. at 324. The Court held
that, in determining the reasonableness of an unallocated Miller-Shugart settlement
containing both covered and uncovered claims, the trial court should first find that the
settlement is reasonable, considering both claims, and then must consider “how a
reasonable person in the position of the insured would have valued and allocated the
covered and uncovered claims at the time of the settlement.” Id. at 323-24.

Applying these authorities, PRMI argues that Dr. Snow was required to account
for the “relative value” of each individual RMBS Trust and Monoline claim in the
bankruptcy settlements and in particular, the relative strength of a statute-of-
limitations defense that RFC could have asserted against the earlier RMBS Trusts that
were not a part of the Pre-Bankruptcy Settlement, when most PRMI loans were sold
to RFC. The district court rejected this contention in its summary judgment rulings.
See PRMI SJ Order, 428 F. Supp. 3d at 143-44, citing Common SJ Order, 332 F.
Supp. 3d at 1203-04. In its post-trial Findings and Conclusions, the court
distinguished UnitedHealth on its facts and again approved the allocated breaching
loss methodology, noting that UnitedHealth did not “alter long-standing Minnesota
law on the allocation of damages,” and that “trying to assign numerical values to legal
defenses is speculative and leads to false precision.” We agree.

-17-
 Under Minnesota law, damages must be proven with “reasonable certainty” to
allow a reasoned judgment on liability. Hydra-Mac, Inc. v. Onan Corp., 450 N.W.2d
913, 921 (Minn. 1990). In UnitedHealth and King’s Cove, the insured, by not
allocating the settlement of multiple covered and uncovered claims, created a
likelihood that the insurer would be required to indemnify uncovered claims, claims
that it had no contractual obligation to indemnify. By contrast, here the district court
determined that every RMBS Trust and Monoline claim is indemnifiable under RFC’s
Seller Guides. This distinguishes UnitedHealth and King’s Cove. There is no risk
that the damages awarded will indemnify ResCap for claims which PRMI had no
obligation to indemnify RFC under the Seller’s Guides.

Moreover, unlike the unallocated settlements in UnitedHealth and King’s
Cove, the Chapter 11 Plan allocated the aggregate allowed claim pro rata among the
RMBS Trusts and Monoline claimants based on the amount that RFC’s material
breaches contributed to their net losses. To simplify their complex negotiations, the
settling parties did not assign different rates to claims from different RMBS Trusts
based on the relative strength of RFC’s possible legal defenses. After thoroughly
reviewing the bankruptcy court settlement and approval proceedings, the district court
concluded that RFC adequately considered the strength of the statute-of-limitations
defense in negotiating a bankruptcy settlement that was reasonable as a matter of law.
See PRMI SJ Order, 428 F. Supp. 3d at 82-85. Minnesota law required no more. See
King’s Cove, 958 N.W.2d at 323; Miller v. Shugart, 316 N.W.2d 729, 735 (Minn.
1982). To rule that ResCap may only recover indemnity claims the RMBS Trusts and
Monoline claimants acquired in the bankruptcy settlements if it undertakes this
claim-by-claim “relative value” inquiry would frustrate the settlements.

In awarding ResCap $5.4 million in indemnification damages, the district court
properly resolved the key inquiry, finding that “Snow’s calculation of damages was
reasonable and non-speculative,” and that his methodology produced a reasonably
certain measure of ResCap’s indemnifiable damages. We uphold the damages award.

-18-
 V. Post-Trial Issues

PRMI challenges the district court’s post-trial award of attorney’s fees, costs,
and prejudgment interest. The parties agree the Seller’s Guide requires PRMI to
indemnify ResCap for “court costs and reasonable attorneys’ fees.” PRMI contests
the procedure used by the district court to determine reasonableness, the
reasonableness of the amounts awarded, and the court’s authority to award a portion
of the prejudgment interest under state law. We review procedural issues and the
award of attorney’s fees for abuse of discretion. Hanig v. Lee, 415 F.3d 822, 825 (8th
Cir. 2005). The authority to grant prejudgment interest is a question of law we review
de novo. Adams v. Toyota Motor Corp., 867 F.3d 903,918 (8th Cir. 2017).

ResCap petitioned the district court for an award of $14.16 million attorneys’
fees and costs from December 2014 to July 2020: $6.7 million for national RMBS
counsel, $3.7 million for local counsel, $189,205 for bankruptcy counsel, and $3.5
million for experts and other costs. ResCap submitted declarations in support by
national and local counsel, and by ResCap’s Chief Financial Officer describing how
she allocated invoices for tasks common to Wave One and Wave Two pro rata
among defendants and how she used this information and work done on
PRMI-specific tasks to calculate the requested award. ResCap provided the court, in
camera, law firm invoices from November 2019 through March 2020, representing
the months immediately before and during the bench trial, with narrative descriptions
of tasks performed redacted, sometimes heavily, allegedly to protect attorney-client
privilege and attorney work product. Instead of invoices, ResCap sent PRMI
“workbooks” for other periods of litigation, listing hours logged and how common
tasks were allocation to ResCap, but omitting narrative descriptions of the work.

PRMI objected to this submission, arguing the materials provided were
insufficient for it to contest the requested award. PRMI requested an order requiring
ResCap to remove redactions of non-privileged, non-protected information; for

-19-
privileged or protected information, to provide short, general explanations of the
work or tasks in question; and to produce law firm invoices from January through
October 2019 and April 2020. As it had done in the First Wave HLC case, see 399
F. Supp. 3d at 845-46, the district court declined the requests for revised redactions
and a “privilege log” and conducted an in camera review of a sample of redacted
invoices to determine whether ResCap had properly redacted attorney-client privilege
and attorney work product information. PRMI then submitted its objections to
ResCap’s fee request, including declarations from PRMI’s counsel and fee expert,
again arguing ResCap had not provided adequate documentation and expanding its
request to include all law firm invoices beginning in December 2014.

In its 103-page Amended Order on Attorney’s Fees, Costs, and Prejudgment
Interest, the district court adhered to its ruling that ResCap’s redactions were proper
“given that the parties remain adverse,” and explained why it rejected PRMI’s
argument that the redactions “hindered PRMI’s ability to properly challenge the
billing records.” The court explained that “the goal in evaluating and potentially
awarding a fee request is to ‘do rough justice, not to achieve auditing perfection,’”
quoting Fox v. Vice, 563 U.S. 826, 838 (2011). The court then reviewed at length
PRMI’s detailed challenges to the reasonableness of work performed and fees
requested by ResCap counsel during ten discrete stages of the protracted litigation
from December 1, 2014, to December 2020. Applying the “lodestar” method of
calculating fees -- multiplying the reasonable number of hours spent by a reasonable
hourly rate -- the court awarded $14,081,616.31 in attorney’s fees and costs. See
Milner v. Farmers Ins. Exch., 748 N.W.2d 608, 620-21 (Minn. 2008), citing Hensley
v. Eckerhart, 461 U.S. 424 (1983).4

4
Under Minnesota law, the lodestar method applies to contractual attorney’s fee
provisions. See Northfield Care Ctr., Inc. v. Anderson, 707 N.W.2d 731, 735-36
(Minn. App. 2006).

-20-
 A. In Camera Review of ResCap Invoices. On appeal, again no doubt
hoping to side-step a deferential standard of review, PRMI argues the district court
violated its constitutional right to due process by refusing to compel ResCap to
provide PRMI with unredacted copies of all law firm invoices underlying the
requested fee award. For authority, PRMI cites a Ninth Circuit decision for the
proposition that “an opposing party normally has a right to see the timesheets on
which a district court relied in issuing a fee award.” Yamada v. Nobel Biocare
Holding AG, 825 F.3d 536, 544 (9th Cir. 2016) (emphasis added).

We do not read Yamada so categorically. The court in Yamada allowed the use
of redacted timesheets. And significantly, the reported decision includes an Order
amending the original filed opinion by adding the word “normally” and footnote 7,
to distinguish Yamada from an earlier Ninth Circuit decision, United States v.
Eyraud, 809 F.3d 462, 471 (9th Cir. 2015), in which the court held the district court
did not violate due process in awarding criminal restitution based on its in camera
review of a victim’s law firm invoices because the defendant “had access to the law
firm’s declaration describing the work it performed . . . and the invoice summaries
listing the amount of time that the work took.” Yamada, 825 F.3d at 539 (cleaned
up). In acknowledging that in camera review may afford due process, Yamada
applied a due process standard for civil litigation that is consistent with the law of this
Circuit. Like the Tenth Circuit, “[w]e review the district court’s discovery decisions
for abuse of discretion and will reverse only if [PRMI] makes a clear showing that the
denial of discovery resulted in actual and substantial prejudice.” Garcia v. Tyson
Foods, Inc., 770 F.3d 1300, 1309 (10th Cir. 2014) (cleaned up); see Minnesota
Supply Co. v. Raymond Corp., 472 F.3d 524, 545 n.14 (8th Cir.2006); accord Mattel,
Inc. v. MGA Ent., Inc., 705 F.3d 1108, 1111 (9th Cir. 2013).

Applying this standard, we conclude the district court did not abuse its broad
procedural discretion. PRMI’s briefs on appeal complain at length about the
“unfairness” of not being able to review redacted law firm invoices the court

-21-
reviewed in camera. But PRMI fails to even address, much less convincingly refute,
the district court’s finding that ResCap’s redactions did not “hinder[] PRMI’s ability
to properly challenge the billing records.” As the district court put it, PRMI’s “claim
that the redactions render it unable to assess Plaintiffs invoices ‘blinks reality.’”

B. Reasonableness. PRMI next contests the overall reasonableness of the
district court’s award of attorney’s fees and costs, emphasizing that the amount
awarded was “grossly disproportionate” to the results ResCap obtained -- $14.08
million in fees and costs versus $5.4 million in damages (disregarding the award of
substantial prejudgment interest). To determine reasonableness under the lodestar
method, Minnesota courts consider several factors: “the time and labor required; the
nature and difficulty of the responsibility assumed; the amount involved and the
results obtained; the fees customarily charged for similar legal services; the
experience, reputation, and ability of counsel; and the fee arrangement existing
between counsel and the client.” Milner, 748 N.W.2d at 621 (cleaned up).

The district court considered each of these factors. It focused heavily on the
“amount involved and the results obtained,” comparing this case to the HLC case
previously litigated by ResCap’s counsel to a favorable trial verdict. The court noted
the complexity of the First Wave and Second Wave ResCap litigation (overlap and
uncertainty persisted because HLC was still on appeal until October 2020); counsel’s
efforts to avoid repetitive work; and the detailed loan-by-loan analysis required
before and during the PRMI trial. The court also focused on PRMI litigation tactics
that contributed to the seeming disproportionality. The court described at length how,
despite warnings by ResCap counsel of the contractual fee-shift provision, PRMI
vigorously contested -- before and during trial -- issues that obviously had little
impact on its damage exposure, and relitigated issues previously decided in the
Common SJ Order and later in this separate case. In comparing the fees awarded with
the results ResCap obtained, the district court did not fault PRMI for its aggressive
defense. But it did quote Seventh Circuit Judge Frank Easterbrook, appropriately in

-22-
our view: “defendants who drive up the expense of litigation must pay the full costs,
even if legal fees seem excessive in retrospect.” Cuff v. Trans States Holdings, Inc.,
768 F.3d 605, 611 (7th Cir. 2014).

After careful review of the district court’s thorough analysis, we conclude the
court did not abuse its discretion in awarding attorney’s fees that rather substantially
exceeded the damages award. The district court thoroughly explained why it
concluded a disproportionate award was reasonable in this case. The Minnesota
Supreme Court has cautioned that the requirement “to consider the amount involved
and the results obtained when awarding reasonable attorney fees does not amount to
a ‘dollar value proportionality rule.’” Green v. BMW of North America, LLC, 826
N.W.2d 530, 538 (Minn. 2013). Although Minnesota appellate courts, like this court,
consider results obtained a “critical” factor, Milner, 748 N.W.2d at 622, they will
uphold as reasonable contractual fee awards in excess of contractual damages
recovered. See Northfield Care, 707 N.W.2d at 736.

C. Prejudgment Interest. PRMI’s final argument concerns the district court’s
award of prejudgment interest on the original $5.4 million damages award. First, in
the Order on Attorney’s Fees, Costs, and Prejudgment Interest, it awarded $2 million
in interest for the time period between the commencement of the action against PRMI
until the entry of judgment on August 17, 2020. That award is not at issue on appeal.
Second, the court then awarded an additional $520,212 in interest for the time period
between the initial judgment in favor of ResCap and the final judgment. For this
period, the court relied on the Minnesota prejudgment interest statute, which allows
an interest rate of 10% “from the time of the verdict, award, or report until judgment
is finally entered.” Minn. Stat. § 549.09, subdiv. 1(a), (c)(1)(ii)(2). Applying the
general rule that “prejudgment interest is a substantive remedy governed by state law
when state-law claims are brought in federal court,” the court reasoned that judgment
was not “finally entered” until after the fee award, because the initial final judgment
reserved the question of attorney’s fees, costs, and prejudgment interest. On appeal,

-23-
PRMI argues the court erred in refusing to apply the lower interest rate prescribed for
postjudgment interest under federal law. See 28 U.S.C. § 1961. We agree.

We have often said that “federal law governs the award of postjudgment
interest . . . while state law governs the award of prejudgment interest.” Weitz Co.,
Inc. v. Mo-Kan Carpet, Inc., 723 F.2d 1382, 1385 (8th Cir. 1983). Though Weitz was
a diversity case, we declined to resolve the “uncertain” question whether interest is
an issue of substance or procedure under Erie R.R. v. Tompkins, 304 U.S. 64 (1938).
Rather, we held that the recently amended federal postjudgment interest statute was
controlling because it addressed “a subject with respect to which Congress has full
power to legislate, even as to cases that get into the federal courts only because of
diversity of citizenship.” Id. at 1386; see Stewart Org., Inc. v. Ricoh Corp., 487 U.S.
22, 27 (1988) (“If Congress intended to reach the issue before the District Court, and
if it enacted its intention into law in a manner that abides with the Constitution, that
is the end of the matter.”).

The district court entered its Judgment in a Civil Case awarding ResCap $5.4
million in damages on August 17, 2020. The federal statute provides interest
calculated at a prescribed floating rate “shall be allowed on any money judgment in
a civil case recovered in a district court.” 28 U.S.C. § 1961(a). The district court
held that, as a matter of Minnesota law governed by Section 549.09, a final judgment
was not “finally entered” until its Judgment in a Civil Case resolving attorney’s fees,
costs, and interest was entered April 28, 2021, and therefore Minnesota’s ten percent
prejudgment rate applied in the interim period. But Section 1961(a) does not say
“final judgment,” it says “money judgment.” The district court on August 17, 2020
entered a “money judgment.” Thus, as in Weitz, the plain language of the federal
statute applies to the interim period and is controlling. Accord Youngs v. Am.
Nutrition, Inc., 537 F.3d 1135, 1146 (10th Cir. 2008). The district court erred in
applying Minnesota law to calculate interest after August 17, 2020, rather than 28
U.S.C. § 1961(a).

-24-
 VI. Conclusion

For the foregoing reasons, the judgment of the district court is vacated and
remanded on the issue of postjudgment interest. In all other respects, the judgment
is affirmed.
______________________________

-25-