Litigation

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.

Majority of Claims Against RBS Dismissed in MBS Suit

 

On November 14, 2016, plaintiff Federal Home Loan Bank of Boston (“FHLBB“) and defendants RBS Securities Inc., RBS Acceptance, Inc., RBS Financial Products, Inc., and RBS Holdings, USA (Inc.) (together, “RBS“) filed a joint stipulation seeking the dismissal of certain securities fraud claims alleged by FHLBB in connection with the marketing and sale of 10 RMBS certificates. The stipulation of dismissal does not affect FHLBB’s claims against RBS arising from the sale of two other RMBS certificates, or FHLBB’s claims against any other defendant. FHLBB brought this litigation against RBS and dozens of other defendants in 2011, alleging violations of Massachusetts securities laws and claiming the defendants made untrue statements and omitted material facts about the quality of the loan pools underlying the securities. Further details of the dismissal are not publicly available. Stipulation.

RBS Settles RMBS Suit for $1.1 Billion

On September 27, 2016, the Royal Bank of Scotland (“RBS”) announced a $1.1 billion settlement with the National Credit Union Administration (“NCUA”) in connection with two federal securities litigations concerning RBS’s underwriting and sale of RMBS. The NCUA, as liquidating agent for Western Corporate Federal Credit Union and U.S. Central Federal Credit Union, brought these actions against RBS and other defendants, claiming that the defendants had misled the credit unions about the risks of RMBS and made various misrepresentations in the offering documents.  Further details of the settlement are not publicly available.

U.S. Bank and WMC Settle Four RMBS Lawsuits

On September 22, 2016, RMBS Trustee U.S. Bank National Association (“U.S. Bank”) and loan originator WMC Mortgage LLC (“WMC”) filed a stipulation of dismissal in four RMBS lawsuits in light of a settlement reached between the parties. The details of the settlement are not publicly available.  The settlement resolves three lawsuits initiated by U.S. Bank, alleging that WMC misrepresented the quality of loans it sold in 2006 and 2007 RMBS offerings, as well as a lawsuit brought by WMC against U.S. Bank, seeking a declaratory judgment regarding WMC’s performance under the governing agreements of an RMBS deal.  Two of U.S. Bank’s lawsuits include claims against loan originator Equifirst Corporation, but these claims are not part of the settlement. Stipulation of Dismissal.

Lehman Estate Settles Claims By RMBS Insurer and Trustee

 

On September 20, 2016, Judge Shelley Chapman of the U.S. Bankruptcy Court for the Southern District of New York approved the $37 million settlement of $1.3 billion in claims asserted against the estates of two defunct Lehman Brothers’ entities by Syncora Guarantee Inc. in its capacity as the insurer for certain certificates issued from the GMFT 2006-1 RMBS trust. After being sued by the GMFT 2006-1 Trustee for payment under the insurance policy, Syncora filed its own claim for indemnification against Lehman as sponsor of the securitization. In addition to settling Syncora’s claim, the agreement also releases Lehman from all potential claims brought by the GMFT 2006-1 Trustee, U.S. Bank NA, in exchange for Lehman’s cooperation in a separate lawsuit arising from GreenPoint Mortgage Funding Inc.’s alleged failure to repurchase defective loans. Settlement Order. Settlement Agreement Submitted For Approval.

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.

MassMutual and RBS Settle RMBS Litigation

On August 12, 2016, Massachusetts Mutual Life Insurance Co. (“MassMutual”) and RBS jointly moved to dismiss MassMutual’s $235 million RMBS claim, stating that the parties had reached a confidential settlement agreement. MassMutual filed the lawsuit in 2011, alleging violations of the Massachusetts Uniform Securities Act.  MassMutual claimed that the defendants made material misrepresentations about the characteristics of mortgage loans that RBS securitized in transactions in which MassMutual invested between 2005 and 2007.  The court entered a final dismissal order on August 15, 2016.  Joint Motion of Dismissal. Order of Dismissal. MassMutual settled similar claims against Barclays Capital Inc. on March 29, 2016 (covered here).

Ninth Circuit Revives RMBS Claims against Nomura

On August 15, 2016, the Ninth Circuit Court of Appeals vacated the Central District of California’s order dismissing claims brought by the National Credit Union Administration Board (“NCUA”), as liquidating agent of Western Corporate Federal Credit Union (“Wescorp”), against Nomura Home Equity Loan, Inc. (“Nomura”) under the Securities Act of 1933.  In 2014, the district court granted Nomura’s motion to dismiss claims that it had made materially false and misleading statements in the offering documents in respect of certificates sold to Wescorp in 2006 and 2007, holding that the NCUA’s claims were barred by the statute of repose established in Section 13 of the 1933 Act, which runs three years after the securities were offered or sold.  The Ninth Circuit disagreed with the district court, concluding that both the text and the legislative purpose of the Extender Statute in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) indicate that Congress intended it to supplant the 1933 Act statute of repose and to further a policy of “protecting the government’s right to recovery.” Opinion at 13.  The Ninth Circuit further concluded that, although the text of the Extender Statute only mentions contract and tort claims, because its dictate is to cover “all actions” brought by the NCUA, it also applies to statutory claims, such as the 1933 Act claims at issue in this case.  Thus, the Ninth Circuit held that the NCUA’s claims against Nomura are not time-barred and remanded the case to the Central District for further proceedings. Summary.