OPINION AND ORDER Plaintiff MBIA Insurance Corporation (“MBIA”) brings this action against defendant Nationstar Mortgage LLC, doing business and now known as Mr. Cooper (“Nationstar”), asserting state-law claims for breach of contract, indemnification, and declaratory relief.Before the Court is Nationstar’s motion to dismiss the amended complaint pursuant to Rule 12(b)(6). (Doc. #20).For the reasons set forth below, the motion is GRANTED IN PART and DENIED IN PART.The Court has subject matter jurisdiction under 28 U.S.C. §1332.BACKGROUNDFor the purpose of ruling on the motion to dismiss, the Court accepts as true all well-pleaded factual allegations in the amended complaint and draws all reasonable inferences in plaintiff’s favor, as summarized below.1I. The Trusts and the PartiesA. The TrustsThis contractual dispute concerns four trust funds funded by the collection of residential mortgage payments: CWHEQ Home Equity Loan Asset Backed Certificates, Series 2006-S8, Series 2006-S9, Series 2007-S1, and Series 2007-S2 (collectively, the “Trusts”). The Trusts are governed by materially identical Pooling and Servicing Agreements (“PSA”) that establish the Trusts’ structure, operation, and administration.2Together, the Trusts have issued several billion dollars’ worth of residential mortgage backed securities (“RMBS”), also known as Certificates. The Certificates are held by investors, also known as Certificateholders, and convey an interest in the Trusts’ residential mortgage assets.B. Bank of New York MellonNonparty Bank of New York Mellon (“BNYM”) serves as the Trusts’ Trustee, to which the PSAs assign authority to administer the Trusts. As Trustee, BNYM disburses funds from the Trusts’ accounts pursuant to “distribution priorities” established by the PSAs. (Am. Compl. 24).C. Nationstar Mortgage LLCDefendant Nationstar served as the Trusts’ Master Servicer at all relevant times. The Master Servicer is responsible for the Trusts’ daily operations. Its ambit includes servicing the Trusts’ residential mortgages (including by collecting payments, foreclosing on mortgaged properties, and selling charged off loans) and maintaining Trust accounts into which the Master Servicer deposits and transfers Trust funds.Among the accounts established and maintained by the Master Servicer are each Trust’s Certificate Account. Section 3.05(b) of the PSAs obliges the Master Servicer to deposit into the Certificate Accounts income from the Trust’s residential mortgage assets, among other things. Funds in the Certificate Accounts are “held in trust for the Certificateholders and the Certificate Insurer for the uses and purposes set forth in [the PSAs].” (Doc. #22-1 (“PSA”) at 17).3The PSAs provide that the Trustee “shall be indemnified by the Master Servicer and held harmless against any loss, liability or expense…incurred in connection with any legal action relating to” the PSAs or Certificates. (PSA at 197). Pursuant to this obligation, Nationstar has indemnified BNYM for the attorneys’ fees BNYM incurred in connection with three lawsuits filed against it by Certificateholders (the “underlying lawsuits”),4 in a total amount of at least $6.8 million.D. MBIAPlaintiff MBIA serves as the Trusts’ Certificate Insurer and is an express third-party beneficiary to the PSAs. As Certificate Insurer, pursuant to the Trusts’ insurance policies (the “Insurance Agreements”), MBIA must pay insurance claims filed when one or more of the Trusts lack sufficient funds to pay full distributions to the Certificateholders. In other words, MBIA must compensate the Trusts’ investors when they submit valid claims for losses suffered due to a shortfall in the Trusts’ Certificate Accounts.5MBIA may exercise legal rights as both a party to the Insurance Agreements and an express beneficiary to the PSAs. In addition, when MBIA makes payments to Certificateholders due to a shortfall caused by a third party’s wrongful conduct, MBIA assumes by subrogation the Certificateholders’ right to sue the third party for damages.II. The Disputed ReimbursementsThis lawsuit arises from withdrawals Nationstar made from the Trusts’ Certificate Accounts. Specifically, Nationstar has repeatedly reimbursed itself (the “disputed reimbursements”) for its indemnification of BNYM’s litigation expenses in the underlying lawsuits.Because the Certificate Accounts hold money used for distributions to Certificateholders, the disputed reimbursements caused the Certificateholders to suffer a shortfall. In turn, the Certificateholders submitted insurance claims to MBIA. According to the amended complaint, MBIA has paid out approximately $6.8 million on those claims to make the Certificateholders whole.MBIA alleges the disputed reimbursements came to light over time. In December 2016, while reviewing a monthly report generated by Nationstar, MBIA allegedly realized Nationstar had deducted from the Trusts at least $2 million “connected to performing mortgage loans.” (Am. Compl. 35). MBIA later learned those deductions totaled “closer to $3 million” as of December 2016. (Id.).MBIA alleges Nationstar tried to conceal the deductions by labelling them a “dummy loan” in its internal accounting reports. (Am. Compl. 36). Nationstar allegedly amended those reports after BNYM “took issue with the ‘dummy loan’ entry.” (Id.). MBIA claims Nationstar’s remittance reports also labeled as “Additional Losses” the Trust funds with which Nationstar reimbursed itself for its indemnity payments to BNYM, despite the fact that the term “additional losses” does not appear in the Trusts’ governing documents. (Id. 37).MBIA alleges it discovered that the “additional losses” entries in fact referred to Nationstar’s self-reimbursements using Trust money. According to MBIA, it then informally contacted Nationstar in an attempt to dissuade Nationstar from continuing to reimburse itself for indemnifying BNYM, and to convince Nationstar to repay MBIA for its insurance claim payments to the Certificateholders caused by Nationstar’s disputed withdrawals. MBIA’s efforts were unsuccessful, and Nationstar continued reimbursing itself in an additional approximate amount of $3.5 million.At the time this action was commenced, MBIA had identified $6,794,690 that Nationstar allegedly diverted improperly from the Trusts: $1,612,301 from each of Series 2006-S8, Series 2006-S9, and Series 2007-S1; and $1,957,787 from Series 2007-S2. MBIA claims Nationstar also has taken additional reimbursements in unknown amounts.In November 2017, pursuant to the PSAs, MBIA formally notified Nationstar of numerous alleged contractual defaults related to the disputed reimbursements and demanded Nationstar cure those defaults. In response, Nationstar asserted the PSAs afford it the right to reimburse itself with Trust money for its indemnification of BNYM.DISCUSSIONI. Standard of ReviewIn deciding a Rule 12(b)(6) motion, the Court evaluates the sufficiency of the operative complaint under the “two-pronged approach” articulated by the U.S. Supreme Court in Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). First, a plaintiff’s legal conclusions and “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements,” are not entitled to the assumption of truth and thus are not sufficient to withstand a motion to dismiss. Id. at 678; Hayden v. Paterson, 594 F.3d 150, 161 (2d Cir. 2010). Second, “[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.” Ashcroft v. Iqbal, 556 U.S. at 679.To survive a Rule 12(b)(6) motion, a complaint’s allegations must meet a standard of “plausibility.” Ashcroft v. Iqbal, 556 U.S. at 678; Bell Atl. Corp. v. Twombly, 550 U.S. 544, 564 (2007). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. at 678. “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. at 556).II. Limitation on Liability ClauseAs a threshold matter, Nationstar argues a limitation on liability clause in the PSAs renders Nationstar immune from MBIA’s claims. MBIA argues the clause does not apply here, and that even if it does, MBIA has adequately pleaded its claims.Assuming, without deciding, that the clause does apply, MBIA has plausibly alleged Nationstar acted with mens rea sufficient to trigger liability.Section 6.03 of the PSAs limits the Master Servicer’s liability for the Master Servicer’s conduct pursuant to the PSAs. It provides:[T]he Master Servicer…shall [not] be under any liability to…the Trust Fund or the Certificateholders for any action taken or for refraining from the taking of any action in good faith pursuant to this Agreement, or for errors in judgment; provided that this provision shall not protect the…Master Servicer…against any breach of representations or warranties made by it herein or protect the…Master Servicer…from any liability that would otherwise be imposed by reasons of willful misfeasance, bad faith or gross negligence in the performance of duties or by reason of reckless disregard of obligations and duties hereunder.(PSA at 183-84). Thus, Section 6.03 does not shield the Master Servicer from liability for willful misfeasance, bad faith, gross negligence, or reckless disregard.The amended complaint alleges Nationstar “actively sought to conceal and cover up” the disputed reimbursements by making “false and/or misleading entries” on remittance reports. (Am. Compl. 74). Specifically, MBIA alleges that Nationstar’s descriptions of the disputed reimbursements as a “dummy loan” and then as “[a]dditional [l]osses” indicate Nationstar acted willfully or with reckless disregard for its contractual obligations. (Id.
