On July 14, 2015, Justice Friedman of the New York State Supreme Court for the County of New York granted in part Morgan Stanley & Co.’s motion to dismiss fraud claims brought by HSH Nordbank AG (“HSH”) and Carrera Capital Finance Limited (together, “Plaintiffs”) in connection with 21 RMBS securitizations, and granted in full a separate motion to dismiss filed by Natixis Real Estate Capital LLC (“Natixis”) against the same Plaintiffs.
Justice Friedman ruled that all claims against Natixis were barred by the statute of limitations for fraud in New York, finding that Plaintiffs could have discovered the alleged fraud at least two years prior to filing. Justice Friedman also dismissed certain of HSH’s fraud claims because it did not sufficiently allege that the certificates’ original purchaser had intended to assign the claims to HSH. The court will permit claims arising from certificates purchased directly by Plaintiffs to proceed. Order.
On July 20, 2015, Judge Scheindlin of United States District Court for the Southern District of New York denied HSBC Bank USA, NA’s (“HSBC”) motion to dismiss claims brought by the National Credit Union Administration (“NCUA”) related to the administration of mortgage-backed securities worth $2 billion. NCUA alleges that HSBC failed to perform its duties as the indentured trustee for 37 RMBS trusts. Judge Scheindlin rejected HSBC’s argument that NCUA lacked standing to bring the suit because most of the debt had been resecuritized, and held that NCUA has standing to pursue the claims against HSBC derivatively because the current trustee of the resecuritized loans tacitly consented to the action by remaining neutral. Opinion and Order.
On July 17, 2015, lead plaintiffs filed a stipulation and agreement settling a 2009 class action lawsuit against JPMorgan Chase & Co. (“JPMorgan”) alleging that the bank had misrepresented the quality of loans underlying $10 billion worth of mortgage-backed securities it sold. Without admitting any wrongdoing JPMorgan agreed to pay plaintiffs $388 million, subject to court approval. Stipulation and Agreement of Settlement.
On July 10, 2015, Judge Denise Cote of the Southern District of New York granted partial summary judgment in favor of defendants WMC Mortgage LLC and GE Mortgage Holding LLC in an action filed by Trustee Bank of New York Mellon (“BoNY”) in connection with the sale of over $900 Million in RMBS. Judge Cote dismissed BoNY’s failure to repurchase claim against WMC, citing ACE v. DB Structured Products, which held that a failure to repurchase claim is not a separately enforceable right that gives rise to a separate breach of contract claim independent of a claim for breach of representations and warranties. Judge Cote also dismissed BoNY’s indemnification claims against both defendants as duplicative of BoNY’s claim for breach of the representations and warranties in the Mortgage Loan Purchase Agreements (“MLPAs”). BoNY’s primary claim, for breach of representations and warranties, was not a subject of the motion for partial summary judgment. Opinion and Order.
In a separate decision, also issued on July 10, Judge Cote denied the defendants’ request for a jury trial, holding that the Trustee’s remaining claims, for breaches of the MLPAs and Pooling and Servicing Agreement seek equitable remedies. Opinion and Order.
On July 10, 2015, Judge Alvin Hellerstein of the Southern District of New York granted defendant WMC Mortgage LLC’s motion for judgment on the pleadings in an action brought by the Federal Housing Financial Agency (“FHFA”) and Deutsche Bank National Trust Co. (“DBNTC”), in its capacity as Trustee of the SABR 2006-WM4 Trust. Judge Hellerstein held that the action was time-barred under New York’s six-year statute of limitations, citing the New York Court of Appeals’ decision in ACE Securities Corp., Home Equity Loan Trust, Series 2006-SL2 v. DB Structured Products, Inc. Judge Hellerstein concluded that the date on which the statute of limitations began to run was the signing date of the Pooling and Servicing Agreement, as opposed to the closing date, because the signing date was the point at which “all the right, title and interest” to the mortgage loans were transferred to the Trustee, and when all misrepresentations were made. Order.
On July 1, Justice Marcy Friedman of the Supreme Court of New York for New York County denied Natixis Real Estate Holdings, LLC’s (“Natixis”) motion to dismiss a repurchase action brought by Wells Fargo Bank, N.A., and Computershare Trust Company, N.A. in their collective capacity as Securities Administrator for Natixis Real Estate Capital Trust 2007-HE2. Consistent with her prior rulings in repurchase actions, held that the action was timely because the six-year statute of limitations for the claims only began to run on the execution date of the PSA, and not on the “as of” or effective date of the PSA. The court also ruled that a timely repurchase demand was not a condition precedent under the PSA at issue and that the plaintiff had adequately alleged in its complaint that Natixis had discovered loans that breached representations; thus, the court held that plaintiff’s failure to make a timely repurchase demand did not warrant dismissal of the action.
Justice Friedman further held that the Securities Administrator had standing to assert the repurchase action against Natixis on behalf of the Trust, rejecting the argument that only the Trustee could bring the suit, as the Securities Administrator’s rights and duties are limited only to administrative tasks and not discretionary ones. The court also dismissed the plaintiff’s claims for rescissory and consequential damages and attorneys’ fees, and struck the plaintiff’s jury demand, without opposition. Order.
On June 29, 2015, Justice Eileen Bransten of New York Supreme Court granted Goldman Sachs Group Inc.’s (“Goldman”) motion to dismiss a cause of action for negligent misrepresentation but denied Goldman’s motion to dismiss causes of action for fraud. IKB Deutche Industriebank AG (“IKB”) had sued Goldman over losses that IKB suffered after it purchased $73.2 million in RMBS. IKB filed the suit in September 2012, alleging that Goldman fraudulently induced IKB to purchase the RMBS by providing offering materials for the RMBS that misrepresented or omitted details about underwriting standards, loan-to-value ratios, occupancy rates of the mortgaged properties, and credit ratings. Goldman sought dismissal on the grounds that IKB’s claims were time-barred, that IKB lacked standing to sue, and that IKB’s allegations failed to state a claim.
Justice Bransten found that it would be premature to determine whether IKB was a proper party before conducting discovery. She rejected Goldman’s argument that IKB filed the case after the three-year German statute of limitations for fraud had run, finding that the claims accrued in Luxembourg, not Germany. Accordingly, Justice Bransten determined that New York’s six-year statute of limitations—not Germany’s—applied and that Goldman had not argued that the claims were time-barred under that longer period. Justice Bransten dismissed IKB’s claim for negligent misrepresentation, finding that IKB’s allegations did not describe the necessary special relationship between the parties, but rather an ordinary arms-length relationship. Finally, Justice Bransten held that IKB had sufficiently pleaded its fraud claims. Order.
On June 25, 2015, U.S. Bank, in its capacity as Trustee for the LXS 2007-7N Trust, filed a summons with notice in New York Supreme Court against Countrywide Home Loans (“CHL”), Countrywide Home Loans Servicing LP (“Countrywide Servicing”), and others, seeking to recover $178 million in losses over alleged breaches of representations and warranties made about the sold to the Trust. U.S. Bank alleges that, despite receiving repurchase demands in connection with allegedly breaching loans, CHL failed to cure or repurchase the loans, or indemnify the Trust for the resultant losses. U.S. Bank also claims that Countrywide Servicing failed to notify the Trustee when it discovered breaches, and failed to force CHL to repurchase or substitute such breaching loans. U.S. Bank seeks specific performance, declaratory relief, damages, indemnification, and prejudgment interest. Summons with Notice.
On June 18, 2015, Justice Marcy Friedman of the New York Supreme Court dismissed RMBS fraud claims brought by Commerzbank AG London Branch (“Commerzbank”) against UBS, Nomura Holdings Inc., Barclays Bank PLC, Citigroup and other banks on the grounds that the fraud claims at issue were barred by the statute of limitations. Ruling for the defendants, Justice Friedman held that New York’s six-year statute of limitations started running on the final purchase date, and not when the certificates started sustaining losses. She also found, in the alternative, that New York’s two-year discovery period for fraud claims was triggered when all the certificates at issue were downgraded. Commerzbank had alleged that the defendant banks had intentionally included toxic loans in securitizations.
On June 22, 2015, United States District Judge Mark G. Mastroianni of the District of Massachusetts largely denied Massachusetts Mutual Life Insurance Company’s (“MassMutual”) motion for partial summary judgment seeking to preclude Deutsche Bank Securities Inc. (“DBSI”) from asserting a due diligence defense with respect to nine of ten RMBS at issue, rejecting the argument that the due diligence performed was facially inadequate. Judge Mastroianni granted the motion as to the tenth securitization, based on his finding that there was no evidence that acquisition diligence was conducted on over 80% of the underlying loan pools.