UBS and Capital Ventures Settle RMBS Dispute

On March 26, Capital Ventures International and several UBS affiliates filed a stipulation of dismissal after reaching a settlement disposing of all claims in the action.  The terms of the settlement are undisclosed.  Capital Ventures had sued UBS for alleged violations of the Massachusetts Uniform Securities Act in connection with $131 million in RMBS that Capital Ventures allegedly purchased from UBS.  Stipulation.

NCUA Sues HSBC For Alleged Breaches of Duties as Trustee for 37 RMBS Trusts

On March 20, the National Credit Union Administration Board, acting as liquidating agent for five failed credit unions, filed suit against HSBC USA in the Eastern District Court of Virginia.  NCUA alleged that HSBC breached its duties as trustee for 37 RMBS trusts from which the credit unions had purchased $2.37 billion in certificates.  In particular, NCUA alleges that HSBC failed to enforce loan originators’ repurchase obligations in connection with alleged breaches of representations and warranties about the loans in the trusts, failed to prudently address servicer or master servicer defaults, and failed to ensure proper conveyance of the loan files to the trusts.  NCUA asserts claims for breach of contract, breach of fiduciary duty, negligence, negligent misrepresentation, breach of the covenant of good faith, violation of the Streit Act, and violation of the Trust Indenture Act.  Complaint.

Appellate Court Affirms in Part Denial of Moody’s Motion to Dismiss Fraud Claims

On March 20, the Appellate Division, Fourth Department, of the Supreme Court of New York affirmed in part and reversed in part the lower court’s denial of Defendant Moody Investor Services, Inc.’s motions to dismiss two actions filed against it arising out of credit ratings Moody’s assigned to CDO certificates.  The court held that Plaintiffs’ fraud claims were sufficiently pled because, although Moody’s credit ratings were statements of opinion, not fact, Plaintiffs adequately alleged that Moody’s did not believe its opinions when it issued the ratings.  The court held that the trial court erred, however, in denying Moody’s motion to dismiss Plaintiffs’ negligent misrepresentation claims because Plaintiffs failed to plead that a special or privity-like relationship existed between Plaintiffs and Moody’s and failed to adequately allege that Moody’s knew the CDOs would be marketed to Plaintiffs.  Opinion.

RBS Motion to Dismiss RMBS Fraud Claim Granted in Part

On March 20, U.S. District Judge Paul G. Gardephe of the Southern District of New York granted in part and denied in part Defendants’ motion to dismiss a complaint filed by several HSH Nordbank affiliates against several RBS affiliates relating to Plaintiffs’ investment in RMBS issued or underwritten by RBS.  The court held that Plaintiffs sufficiently alleged fraudulent intent in connection with alleged misstatements concerning the underlying loans’ compliance with underwriting guidelines, but failed to do so in connection with alleged misstatements concerning the loans’ LTV and CLTV ratios, and owner occupancy rates, as well as the RMBS certificates’ credit ratings and the validity of the assignment of the mortgages to the RMBS trusts.  The court thus allowed Plaintiffs’ fraud and aiding and abetting fraud claims to proceed as to alleged misstatements concerning compliance with underwriting guidelines only.  The court separately dismissed Plaintiffs’ claims for negligent misrepresentation and fraudulent concealment due to the absence of privity, as well as Plaintiffs’ claim for rescission based on mutual mistake.  Order.

Court Dismisses FDIC’s Amended Complaint for Untimeliness

On March 24, Judge Laura Taylor Swain of the United States District Court for the Southern District of New York granted Defendants’ motion to dismiss an action filed by the FDIC, as receiver for two failed banks, related to RMBS certificates that the banks purchased.  The court held the FDIC’s federal Securities Act claims to be untimely because they were filed outside of the statute of repose period provided by Section 13 of the Securities Act.  The court further held that the “Extender Provision” of FIRREA does not preempt the statute of repose set forth in Section 13.  The court held that the Extender Provision was indistinguishable from a similar provision in CERCLA that the Supreme Court recently held, in CTS Corp. v. Waldburger, did not preempt statutes of repose.  Order.

District Court Allows NCUA’s RMBS Suit to Proceed Against RBS

Nat’l Credit Union Admin. Bd. v. RBS Sec. Inc. et al., No. 2:11-cv-05887 (C.D. Cal. July 18, 2011)

On March 16, 2015, Judge George Wu of the United States District Court for the Central District of California denied RBS Securities Inc.’s motion to dismiss the National Credit Union Administration’s second amended complaint.  In July 2011, NCUA sued RBS on behalf of WesCorp, a federal credit union, in order to recover billions of dollars for failed wholesale credit unions claiming investment banks misled them about the nature and quality of offered RMBS.  NCUA alleges that RBS’ underwriters downplayed investment risks and made misrepresentations in offering documents by underestimating the likelihood that borrowers would default on their mortgages.  Judge Wu said that the court would not consider a motion to dismiss parts of claims under F.R.C.P. 12(b)(6).  He noted that his approach differed from that of Judge John W. Lungstrum of the District of Kansas, who agreed to hear motions to dismiss portions of a claim in NCUA v. RBS Secs., Inc., No. 11-2340-JWL (D. Kan. June 20, 2011), denying and granting those motions in part.  Order.

 

US Bank Cannot Revive Majority of MBS Suit Against Citigroup

U.S. Bank NA v. Citigroup Global Markets Realty Corp., No. 1:13-cv-06989 (S.D.N.Y. Oct. 1, 2013)

On March 16, 2015, Judge George B. Daniels of the United States District Court for the Southern District of New York denied the majority of claims in U.S. Bank’s attempt to refile an amended complaint against Citigroup Global Markets Realty Corp. and CitiMortgage, Inc.  U.S. Bank, as RMBS trustee, had sued Citigroup in October 2013, alleging that it breached representations and warranties in a $832 million RMBS deal.  In November 2014, Judge Daniels dismissed most of the claims, but permitted leave to amend.  In addressing U.S. Bank’s proposed amendments, Judge Daniels first held that the cause of action for breach of representations and warranties was untimely as to certain loans under the six-year statute of limitations.  Next, it dismissed U.S. Bank’s second claim that Citigroup independently discovered defects in the loan pool through due diligence or government investigations, because U.S. Bank failed to allege non-speculative facts plausibly showing such discovery.  These rulings were substantially similar to those set forth in the November 2014 order.  Finally, Judge Daniels permitted U.S. Bank’s third cause of action to proceed, holding that the plaintiff sufficiently pleaded that CitiMortgage discovered breaches of representations and warranties during its servicing of the securitized loans, and did not fulfill its contractual duties to notify the parties of the breaches and to enforce Citigroup’s cure or repurchase obligation.  Order

Court Approves RMBS Settlement, Rejecting Institutional Investors’ Attempts to Scuttle It

On March 12, 2015, Judge Katherine B. Forrest of the United States District Court for the Southern District of New York approved a $69 million settlement between the plaintiffs and defendants in Policemen’s Annuity & Benefit Fund of the City of Chicago v. Bank of America and dismissed the case with prejudice.  Plaintiffs, a class of investors, had sued Bank of America and U.S. Bancorp in their capacity as trustees for 50 Washington Mutual RMBS.  Plaintiffs alleged that the trustees breached the Trusts’ Governing Agreements and the duty of food faith and fair dealing, and violated the Trust Indenture Act.  Judge Forrest’s approval of the settlement came one week after she denied certain institutional investors’ motion to intervene in the action for purposes of blocking the settlement.  The institutional investors, led by BlackRock and PIMCO, currently are asserting derivative claims against U.S. Bank, as Trustee, on behalf of 843 RMBS Trusts, and asserted that the settlement excluded them while simultaneously releasing their claims as to RMBS Trusts that overlapped between the two actions.  The Court disagreed, finding that although BlackRock and PIMCO were excused from the settlement, the settlement did not release the claims they were pursuing.  Order Approving Settlement.  Stipulation and Settlement.  Order Re Motion to Intervene.

New York Supreme Court Holds RMBS Claims Are Timely, But Accrual Provision Unenforceable

On March 3, 2015, Justice Marcy S. Friedman of the New York Supreme Court granted in part and dismissed in part Defendant Greenpoint Mortgage Funding, Inc.’s Motion to Dismiss an action in which it was said to have misrepresented the quality of loans underlying an RMBS transaction.  Plaintiff-Trustee, U.S. Bank National Association, argued that the case was timely under a provision of the governing Mortgage Loan Sale Agreement providing that no claim accrues for breach of a repurchase obligation until the purchaser discovers a breaching loan (or is so notified), the seller fails to cure such breach, and the purchaser makes a demand for cure.  The court rejected the plaintiff’s reliance on this accrual provision, citing earlier decisions holding that New York law precludes the extension of an applicable statute of limitations by contract.  The court nonetheless concluded that the action was timely, finding that the plaintiff had pled sufficient facts to state a claim that Greenpoint was aware of breaches within the limitations period.  Additionally, Justice Friedman granted the motion to dismiss the plaintiff’s claims for (1) reimbursement of attorney’s fees, as these were not encompassed by the MLSA’s indemnification provisions, (2) all claims that sought relief beyond that permitted under the contract’s sole remedy provision, and (3) claims for breach of the implied covenant of good faith and fair dealing, which the court found to be duplicative of the underlying contract claim.  Order.

 

SDNY Declines to Reconsider Denial of Plaintiffs’ Summary Judgment Motion in RMBS Putback Case

On February 25, 2015, Judge P. Kevin Castel of the S.D.N.Y. issued an opinion denying reconsideration of a January 9, 2015 order that granted in part and denied in part the parties’ competing motions for summary judgment in MASTR Adjustable Rate Mortgages Trust 2006-OA2 v. UBS Real Estate Secs., Inc., 1:12-cv-07322 (S.D.N.Y.).  The plaintiff trusts moved the court for reconsideration of the prior ruling to the extent it (i) denied the trusts’ motion for summary judgment as to a purported repurchase obligation for a specified percentage of the underlying loan pool based on statistical sampling, and (ii) dismissed the trusts’ claims based on a “pervasive breach” theory.  First, the Court concluded that plaintiff’s submission of the results of their experts’ re-underwriting of a sample of loans in which the experts concluded that 37% of the sampled loans were “materially defective” was not sufficient to require repurchase of 37% of the entire loan pool.  Judge Castel reasoned that the reunderwriting conclusions “did not align with the materiality requirement of the parties’ agreements,” which require that the breach of a representation “materially and adversely affect the interest of the Certificateholders” in order to trigger a repurchase obligation.  Second, the Court reaffirmed its prior rejection of the plaintiffs’ “pervasive breach” theory, by which they argued that notice of “many” defective loans put the sponsor on inquiry notice and triggered an obligation to repurchase all defective loans.  The Court relied on the parties’ agreements, explaining that the parties could have, but did not, bargain for an inquiry notice standard.  Order.