Posts by: Samantha Hope Scheller

Wells Fargo Wins Summary Judgment Motion on All Claims Brought by German Bank LBBW Luxemburg

 

On March 30, 2017, Judge J. Paul Oetken granted Defendants Wells Fargo Securities LLC (“Wells Fargo“), f/k/a Wachovia Capital Markets LLC (“Wachovia“), and Fortis Securities LLC’s motion for summary judgment, dismissing the remaining causes of action and closing the case in LBBW Luxemburg S.A. v. Wells Fargo Securities LLC in the United States District Court for the Southern District of New York.

In a prior motion to dismiss order in 2014, the Court granted in part Defendants’ motion to dismiss, “keeping alive” only one theory of liability brought by LBBW. That remaining theory was that Wachovia’s internal valuation markdown of the Grand Avenue II (“GAII“) CDO Preference Shares, for which Defendants had served as some of the initial purchasers, on the same day it issued those shares allegedly signaled Wachovia’s potential misrepresentation or omission to purchasers of other GAII’s securities. Plaintiffs argued this markdown supported a plausible inference that Wachovia knowingly misrepresented the value of CDO shares and constituted circumstantial evidence of conscious misbehavior.

In its ruling, the Court held that LBBW failed to show that it conveyed its right to sue to another German entity, Landesbank, when the two companies merged in 2014, and therefore failed to establish standing.

Judge Oetken also found that LBBW failed to overcome the motion for summary judgment on the merits. The Court found that LBBW’s single surviving theory of liability was unsupported by the record, as discovery in the case had not produced evidence to connect the markdown to any secretly held view by Wells Fargo that GAII’s portfolio of assets was in trouble.

The Court also rejected the fraud claims brought against Defendants, finding that LBBW failed to point to specific evidence as to a misrepresentation or material omission on Defendants’ part based on the single surviving theory. Judge Oetken also dismissed constructive fraud and negligent misrepresentation claims against Defendants, concluding again that there was a lack of evidence to support any misrepresentation, an essential element of both claims. Finally, the Court found that LBBW’s breach of contract claim, which alleged that Defendants agreed to notify it of any material changes to the CDO’s capital structure, must fail, as the “evidence establishes beyond genuine dispute that the internal markdown on the Preference Shares was not related to any change in Wachovia’s view of GAII’s underlying portfolio of assets.”

In addition to granting Defendants’ motion for summary judgment, Judge Oetken also denied LBBW’s motion to supplement the summary judgment record as untimely; LBBW’s motion to strike certain of Defendants’ arguments; and LBBW’s motion for adverse inference sanctions. Opinion.

SDNY Grants Defendant GreenPoint Mortgage Summary Judgment

 

On March 29, 2017, Judge Andrew L. Carter, Jr., of the United States District Court for the Southern District of New York granted Defendant GreenPoint Mortgage Funding, Inc.’s (“GreenPoint“) motion for summary judgment, dismissing all causes of action against it as time-barred and terminating the case in Lehman XS Trust et al. v. GreenPoint Mortgage Funding, Inc.

Plaintiff Trustee U.S. Bank National Association, on behalf of the Lehman XS Trust, Series 2006-GP2 (“GP2“), Lehman XS Trust, Series 2006-GP3 (“GP3“), and Lehman XS Trust, Series 2006-GP4 (“GP4“) (collectively, the “Trusts“), and Freddie Mac Conservator Federal Housing Finance Agency (collectively, “Plaintiffs“) brought consolidated claims against GreenPoint regarding GP2, GP3, and GP4. Plaintiffs alleged breach of contract and indemnification claims for specific performance and damages arising out of GreenPoint’s alleged breach of certain representations and warranties.

Citing N.Y. C.P.L.R. § 214(3), the Court first found that Plaintiffs’ breach of contract claims under the mortgage loan purchase agreements (“MLPA“) for all three Trusts were time-barred under New York state’s six-year statute of limitations for breach of contract actions. The Trusts’ respective MLPAs required GreenPoint to cure or repurchase the defective loans in the event that any of the mortgage loans breached these representations and warranties. The closing dates for the Trusts were as follows: GP2 on May 15, 2006; GP3 on June 15, 2006; and GP4 on July 17, 2006. FHFA filed summons with notice for GP2 on May 30, 2012; for GP3 on June 29, 2012; and for GP4 on July 30, 2012.

Judge Carter then rejected Plaintiffs’ indemnification claims arising out of GreenPoint’s alleged breaches of representations and warranties. Plaintiffs sought indemnification for its losses, costs, fees, and expenses arising out of and related to the breaches of GreenPoint’s representations and warranties. Since Plaintiffs did not face liability to a third party as a result of the alleged breaches, the Court held that Plaintiffs’ indemnification cause of action was “more appropriately characterized as one to recover losses incurred by breach of contract” and therefore also barred by the statute of limitations.

Finally, the Court dismissed as time-barred Plaintiffs’ newly alleged causes of action for breach of GreenPoint’s representations and warranties made in the Trusts’ Indemnification Agreements, which provide for indemnity to the Trusts and other entities for claims arising out of breaches of the representations and warranties made in the information provided by or on behalf of GreenPoint for inclusion in the Prospectus Supplements. Opinion.

Moody’s to Pay $864 Million to U.S. Department of Justice & 21 States in Credit Rating Settlement

 

On January 13, 2017, Moody’s Corporation agreed to pay $864 million in a settlement with the U.S. Department of Justice and 21 states in connection with the ratings agency’s credit rating work on residential mortgage‑backed securities and other products during the years leading up to the financial crisis. The settlement is comprised of a $437.5 million payment to the Department of Justice and $426.3 million to 21 states. The Statement of Facts accompanying the Settlement Agreement states that from 2004‑2010, Moody’s issued credit ratings of RMBS and CDOs, but that there were potential conflicts of interest in Moody’s “issuer‑fee‑based” business model, in which issuers paid Moody’s for their credit opinions. The settlement agreement does not constitute sanctions “for any act or practice of Moody’s.” In accordance with the settlement agreement, Moody’s agrees to maintain and adopt certain compliance measures that “promote the integrity and independence of Moody’s credit ratings” for a period of five years. Settlement Agreement. Statement of Facts. Moody’s Compliance Commitments.

SDNY Court Appoints Lead Master to Review 9,300 UBS Loans for Material Breach Following UBS Putback Trial

 

On September 6, 2016, following a 3-week long bench trial in May, U.S. District Judge P. Kevin Castel of the Southern District of New York held that he will appoint a Lead Master to determine whether there are “material breaches” in 9,300 loans at issue in putback litigation against UBS. In its 239-page post-trial decision, after addressing a number of issues and discussing 20 loans, the Court appointed a Lead Master to examine each loan on an individual basis and prepare recommended findings and conclusions on liability.

The Court outlined Plaintiff’s burden of proof for breach of underwriting guidelines, holding that the Plaintiff must demonstrate it is more likely than not that the loan was not originated in compliance with the relevant underwriting guidelines, unless an exception was actually exercised, in a reasonable manner, at the time of origination. Plaintiffs will then be required to prove a breach has a “material and adverse” effect at the time UBS’s repurchase obligation was triggered. The Court held this can be shown: (1) by proving an increased risk of loss to certificateholders; (2) with evidence that a breach resulted in altered loan terms; or (3) through a showing of layered risk and/or the cumulative effect of multiple breaches. The Court held that discovery of a breach cannot be based on constructive knowledge. Instead, Plaintiffs must show actual knowledge, which may be established by circumstantial evidence, or willful blindness. Memorandum and Court Order.

Court Denies Summary Judgment on Issues of Timeliness in NCUA RMBS Suit

 

On September 1, 2016, Judge John W. Lungstrum of the U.S. District of Kansas denied cross-motions for summary judgment on the issue of timeliness brought by RBS, Nomura and the NCUA in NCUA v. RBS Securities, et al. NCUA alleges in its 2011 complaint that it suffered losses of $800 million on 2006-2007 vintage RMBS certificates based on misstatements by the defendants. Defendants RBS and Nomura argued on summary judgment that NCUA’s claims must be dismissed because they were not brought within one year after discovering the allegedly untrue statement or omission, or after such discovery should have been reasonably made. NCUA argued in opposition that it did not have constructive notice of the facts underlying its claims by the relevant dates and that its claims were timely. The Court found that “a jury could reasonably find in favor” of either party as to what a “reasonably diligent investor would have known and done in 2007 and 2008 on the timeliness issue” and that as a result fact questions remained precluding summary judgment for either side. Memorandum and Court Order.

FDIC Settles RMBS Litigation for $190 Million with U.S. Financial Institutions

On May 26, 2016, the FDIC reached a $190 million settlement of RMBS claims against eight financial institutions, including Barclays Capital Inc.; Deutsche Bank Securities Inc.; Goldman, Sachs & Co; RBS Securities Inc.; and UBS Securities LLC. The settlement resolves six separate suits brought in 2011 and 2012 in California and Alabama alleging misrepresentations within the defendant underwriters’ RMBS offering documents.  The FDIC, as a receiver, will distribute the settlement funds among five failed bank receiverships.  FDIC Settlement Agreement.

Goldman Sachs Set to Pay $5.1 Billion in RMBS Settlement

On April 11, Goldman Sachs agreed to pay roughly $5.1 billion in a settlement with federal and state officials regarding the marketing and sale of RMBS during the years leading up to the financial crisis.  The settlement is divided into a $2.4 billion civil penalty, $1.8 billion for consumer relief and $875 million in cash.  Cash payments will primarily be divided among the National Credit Union Administration, the Federal Home Loan Banks and the States of California, Illinois and New York. Goldman Settlement.

New York Federal Judge Approves Wells Fargo $1.2 Billion Settlement with FHA

On April 8, U.S. District Judge Jesse M. Furman approved a $1.2 billion settlement paid by Wells Fargo NA to the Federal Housing Administration (“FHA”) over allegations that Wells Fargo submitted insurance claims for defaulted loans that failed to meet FHA standards.  The Settlement Order states that “Wells Fargo Bank admits, acknowledges, and accepts responsibility” for certain allegations in the FHA’s complaint (October 15, 2012 FIWIR coverage), filed October 9, 2012 in the Southern District of New York. Wells Fargo Settlement Order.

U.S. Supreme Court Denies S&P Investors’ Petition for Certiorari

On November 2, 2015, the United States Supreme Court denied investors’ petition for review of a Second Circuit decision affirming the dismissal of their class action against Standard & Poor’s Rating Services’ parent, McGraw-Hill Cos. Inc., and two of its corporate officers.  In that case, the plaintiff pension fund had made claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Section 15 of the Securities Act of 1933, alleging that S&P’s Ratings Services had intentionally made false and misleading statements to investors about the accuracy of its credit ratings for mortgage-backed securities.  As we previously covered, the Second Circuit had affirmed a decision by Judge Sidney H. Stein of the Southern District of New York dismissing the suit and holding that S&P’s ratings were “mere commercial puffery” and could not form the basis for a securities fraud claim.  In its certiorari request, Plaintiff argued that Judge Stein’s and the Second Circuit’s broad interpretation of “puffery” conflicted with Supreme Court precedent, Omnicare Inc. et al. v. Laborers District Council Construction Industry Pension Fund by holding that the alleged knowing falsity of S&P’s statements is irrelevant.  Petition for CertOrder List.

 

Goldman Sachs Settles CDO Class Action

On November 3, 2015, Goldman Sachs Group Inc. agreed to settle a lawsuit brought by a class of investors over Goldman’s sale of two collateralized debt obligations.  The settlement agreement comes on the heels of a September 8, 2015 summary judgment decision for Goldman that we recently covered, which found that Plaintiffs had failed to show evidence that Goldman Sachs knew about the risks associated with the CDOs.  The settlement amount was not disclosed.  Settlement Announcement.