Central Mortgage Company v. Morgan Stanley Mortgage Capital Holdings LLC

Supreme Court of Delaware · 2011 · Corporations

27 A.3d 531 (2011)

Updated August 22, 2026

CorporationsContractsPleading standardsImplied covenant of good faith and fair dealingmotion to dismissconceivabilitynotice provisioncondition precedent

Facts

Morgan Stanley sold CMC servicing rights on mortgage pools under a Master Agreement governed by New York law, which required prompt written notice of breaches and gave Morgan Stanley 60 days to use best efforts to cure. After the loans began performing poorly and the Agencies later issued repurchase and make-whole demands, CMC forwarded those demands to Morgan Stanley, which repurchased loans or reimbursed CMC 47 times before later refusing to do so. CMC alleged that for each loan Morgan Stanley refused to cover, it gave notice and at least 60 days to cure by notifying Morgan Stanley of the Agency request and the specific grounds for it. CMC also alleged Morgan Stanley had earlier induced it to enter the transactions by showcasing its due diligence process and representing that it closely followed Agency underwriting guidance, then later admitted it had not properly diligenced the first batch of loans.

Issue

At the motion to dismiss stage, did CMC adequately plead compliance with the Master Agreement's notice provision so that its breach of contract claims could proceed? Separately, did CMC's implied covenant of good faith and fair dealing claim rest on factual allegations distinct enough from its breach of contract claims to avoid dismissal as duplicative under New York law?

Rule

In Delaware, the governing pleading standard on a motion to dismiss is reasonable conceivability: the court accepts well-pleaded allegations as true, accepts even vague allegations if they give notice, draws reasonable inferences for the plaintiff, and dismisses only if recovery is not reasonably conceivable. A court may not, at the pleading stage, resolve factual disputes over compliance with a contractual notice provision when the complaint adequately alleges compliance. Under New York law, an implied covenant of good faith and fair dealing claim may proceed only if its factual basis differs from that of the accompanying breach of contract claim; if based on distinct facts, it is not duplicative.

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Riverview Loan Services in Phoenix sued Harbor Crest Funding in Delaware over a servicing-rights agreement governed by Illinois law. The complaint alleges that for each defective loan, Riverview gave Harbor Crest written notice identifying the investor's rejection grounds and allowed the contract's 45-day cure period, but Harbor Crest argues the allegations are too conclusory.

On Harbor Crest's motion to dismiss in Delaware, how should the court rule?

Explanation. The governing Delaware standard at the motion to dismiss stage is reasonable conceivability, not federal plausibility. The court accepts well-pleaded facts as true, accepts even vague allegations if they give notice, draws reasonable inferences for the plaintiff, and dismisses only if recovery is not reasonably conceivable. An allegation that notice was given, the grounds were identified, and the cure period elapsed is enough to survive dismissal.