On August 14, RBS Securities reached a deal with Assured Guaranty Municipal Corp. to settle a lawsuit alleging misrepresentations concerning the collateral underlying a US$291 million securitization. The complaint alleged that Assured anticipated paying US$100 million in claims pursuant to the monoline insurance policy it issued in connection with the securitization. In light of the settlement, Judge Ronnie Abrams of the United States District Court for the Southern District of New York dismissed Assured’s suit with prejudice, with the stipulation that Assured may restore the suit within 30 days if the settlement is not finalized. The amount and terms of the settlement were not disclosed. Order.
On August 18, Judge Katherine Forrest of the United States District Court for the Southern District of New York terminated a pending motion for class certification in light of a settlement in principle reached between a class of RMBS investors and Bank of America N.A. and U.S. Bank N.A., the trustees for the RMBS trusts. Plaintiffs had alleged that Bank of America and U.S. Bank allowed incomplete or defective loan files as well as loans with underwriting errors to remain in the loan pool, despite their statutory duty as trustees to have such loans repurchased from the trusts. The amount and terms of the settlement were not disclosed. Order.
On August 19, in an oral ruling from the bench, Vice Chancellor J. Travis Laster of the Delaware Chancery Court dismissed as time-barred loan repurchase claims brought by U.S. Bank as trustee of an RMBS trust against JPMorgan and EMC Mortgage. U.S. Bank alleged that EMC misrepresented the quality of more than US$500 million worth of mortgages that were sold to the trust in 2006 and that both EMC and JPMorgan, which took over as the servicers of the trust in 2011, failed to notify the trustee of the faulty loans. Vice Chancellor Laster, following the Delaware Chancery Court’s 2012 decision in Central Mortgage Co. v. Mortgage Stanley Capital Holdings LLC., held that Delaware’s three-year statute of limitations for breach of contract claims began to run on the day the allegedly false representations were made. He held that the contract’s accrual provision could not extend the statute of limitations and that no other tolling doctrines applied to render plaintiff’s claims timely. He also held that the alleged failure to notify claim was derivative of the underlying claim for breach of representation and subject to the same limitations period. Vice Chancellor Laster did not dismiss U.S. Bank’s claims for unjust enrichment and failure to provide documents, finding them well pled and not time barred. Hearing Transcript.
On August 22, Goldman Sachs and FHFA announced a US$3.15 billion settlement of claims brought by FHFA against Goldman in two separate lawsuits related to RMBS purchased by Fannie Mae and Freddie Mac between 2005 and 2007. FHFA, as conservator for Fannie Mae and Freddie Mac, asserted claims for violations of federal and state securities law on the basis of alleged material misrepresentations or omissions in the offering documents for the RMBS sold to Fannie Mae and Freddie Mac. As part of the settlement, Goldman is repurchasing most of the RMBS at issue. Goldman did not admit any liability or wrongdoing as part of the settlement. Fannie Mae Agreement. Freddie Mac Agreement.
Judge Sam Sparks of the United States District Court for the Western District of Texas granted judgment to defendants in two related cases filed by the FDIC on behalf Guaranty Bank (now defunct) arising out of Guaranty Bank’s purchases in 2004 and 2005 of US$2.1 billion in RMBS. Defendants Goldman Sachs, Deutsche Bank, Merrill Lynch and RBS Securities sought judgment on the pleadings that the FDIC’s claims were time barred under the Texas Securities Act’s five-year statute of repose. The court agreed, holding that under the Supreme Court’s recent decision in CTS Corp. v. Waldburger the FDIC Extender Statute did not preempt the Texas statute of repose. Goldman/DB Order. Merrill/RBS Order.
On remand following a Second Circuit decision vacating his June 2011 rejection of a settlement between Citigroup and the SEC, Judge Jed Rakoff of the Southern District of New York approved the settlement, finding that it met the requirements articulated by the Second Circuit. In the settlement, Citigroup has agreed to pay US$285 million to resolve fraud claims stemming from the sale of mortgage-backed securities. Additionally, in its August 1, 2014, Form 10-Q, Citigroup stated that the SEC had advised Citigroup that it had concluded its investigation of Citigroup’s MBS practices and did not intend to recommend an enforcement action. Opinion. 10-Q Excerpt.
On July 30, Judge Denise Cote of the United States District Court for the Southern District of New York granted the motion for partial summary judgment brought by FHFA, as conservator for Fannie Mae and Freddie Mac. FHFA initiated securities fraud cases against a number of banks alleging false statements made in the offering documents for RMBS purchased by the GSEs between 2005 and 2007. FHFA’s action remains pending against HSBC, Goldman Sachs, RBS Securities and others. In its motion for summary judgment, FHFA sought a ruling that no reasonable jury could find that the GSEs knew the banks’ statements were false. The defendants argued seven categories of circumstantial evidence illustrated the GSEs’ awareness of the information that they now allege was concealed. These included the GSEs’ knowledge about loan originators, participation in the subprime and Alt-A markets, knowledge of risk associated with reduced documentation programs, and anti-predatory lending reviews. The court held that these categories were not enough to prove that the GSEs had actual knowledge that any representation was false, as required by Sections 11 and 12(a)(2) and the Blue Sky Laws. The court therefore granted summary judgment for FHFA on that issue. Decision.
On July 23, Judge William Conley of the Western District of Wisconsin granted in part and denied in part RBS Securities Inc.’s motion for summary judgment in a suit brought by CUNA Mutual Group seeking to rescind the purchase of fifteen RMBS certificates. Judge Conley granted RBS’s motion for summary judgment as to nine of the fifteen RMBS certificates on the ground that CUNA Mutual’s claims were time-barred by Wisconsin’s six-year statute of limitations. He also granted summary judgment to RBS in connection with CUNA Mutual’s allegations of misrepresentations concerning compliance with underwriting guidelines, finding that CUNA Mutual presented insufficient evidence to allow a trier of fact to conclude that it actually relied on any of those representations. Judge Conley similarly granted summary judgment to RBS in connection with CUNA Mutual’s allegations of misrepresentations concerning owner occupancy status, finding that CUNA Mutual had not submitted adequate evidence of any misstatement by RBS of the owner occupancy ratios, which were based on occupancy information provided by the borrowers. As to the six certificates remaining in the lawsuit, CUNA Mutual is allowed to proceed on its claim for rescission based on allegations that RBS misrepresented the LTV and CLTV ratios of the collateral pools. Finally, Judge Conley denied a series of discovery and sanctions motions raised by both parties. The case is scheduled to proceed to trial on August 4. Order.
On July 18, Justice Marcy Friedman of the New York County Supreme Court, Commercial Division, granted in part and denied in part Nomura Credit & Capital Inc.’s motion to dismiss claims brought by HSBC, as Trustee for the NAAC 2006-AF2 RMBS Trust, seeking damages, specific performance and indemnification for alleged breach of contract. Relying on her order from a prior case involving Nomura, Justice Friedman held that the causes of action for damages and specific performance were adequately pled to the extent they were based on Nomura’s alleged breaches of representations and warranties regarding mortgage loans. Justice Friedman held that the relief available to the plaintiff was limited, by operation of the sole remedy provision of the parties’ contract, to specific performance of the repurchase protocol or damages consistent with the protocol’s terms. She thus dismissed plaintiff’s cause of action seeking rescissory damages. Justice Friedman also rejected the plaintiff’s argument that alleged willful misconduct rendered the sole remedy provision unenforceable, holding both that plaintiff failed to adequately allege intentional wrongdoing by Nomura and that the sole remedy provision was not the type of exculpatory clause that could be rendered unenforceable by willful misconduct. Finally, Justice Friedman rejected plaintiff’s request for attorneys’ fees, holding that the indemnification provision in the parties’ contract did not clearly provide for fee shifting in lawsuits between the parties. Order.
On July 24, the SEC announced that it had charged three Morgan Stanley entities with misleading investors with regard to two RMBS securitizations that the firms underwrote, sponsored and issued and that the firm agreed to settle the charges. In the cease and desist order memorializing the settlement, the SEC alleged that Morgan Stanley misrepresented the current and historical delinquency status of the mortgage loans underlying the securitizations. The SEC alleged that these misrepresentations violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. Morgan Stanley agreed to settle the charges without admitting or denying wrongdoing. As part of the settlement, Morgan Stanley agreed to cease and desist further violations of §§ 17(a)(2)-(3) and to pay US$275 million in disgorgement, prejudgment interest and penalties, which will be placed in a Sarbanes-Oxley Fair Fund for distribution to investors. Press Release. Order.