BofA and Countrywide Settle RMBS Lawsuit with National Integrity

On August 28, in light of a settlement reached between the parties, Judge Mariana R. Pfaelzer of the United States District Court for the Central District of California dismissed a lawsuit brought by National Integrity Life Insurance Company against various Bank of America and Countrywide entities in connection with more than US$447 million in RMBS.  The complaint alleged claims under the Securities Act of 1933, the Ohio Securities Act, the Ohio Corrupt Activities Act, and various common law causes of action arising out of alleged misstatements made in the RMBS offering documents.  The amount and terms of the settlement were not disclosed.  Order.

Court Grants in Part and Denies in Part DB Structured Products’ Motion to Dismiss Trustee Repurchase Action

On August 28, Justice Marcy S. Friedman of the Supreme Court of the State of New York granted in part and denied in part DB Structured Products, Inc.’s motion to dismiss repurchase claims brought by HSBC, as Trustee for the Ace Securities Corp. Home Equity Loan Trust, Series 2007-ASAP2.  Relying on her prior decision in Nomura Asset Acceptance Corp. Alternative Loan Trust v. Nomura Credit & Capital, Inc., Justice Friedman held that the relief available to plaintiff is limited by the sole remedy provision of the parties’ contracts and therefore dismissed plaintiff’s claim for rescission.  She also dismissed as duplicative plaintiff’s claim for breach of implied covenant of good faith and fair dealing and rejected plaintiff’s claim for indemnification of attorney’s fees.  However, Justice Friedman declined to dismiss the complaint because of the plaintiff’s failure to serve a timely repurchase demand prior to filing suit, holding the plaintiff sufficiently alleged that DBSP had independently discovered breaches within the six-year limitations period to survive a motion to dismiss. Order.

FDIC RMBS Suit Dismissed as Time-Barred

On August 29, Judge Louis L. Stanton of the United States District Court for the Southern District of New York granted a motion by JPMorgan, Citigroup and several other banks for judgment on the pleadings, dismissing a lawsuit filed by the FDIC, as receiver for Colonial Bank, involving US$388 million in RMBS.  Defendants sought judgment on the pleadings that the FDIC’s claims under the Securities Act of 1933 were time barred by the three-year statute of repose applicable to such claims.  FDIC argued that the Extender Statute, which extends the limitation period for the FDIC to assert claims to three years after the FDIC is appointed as receiver, tolled the time within which it had to assert its claims.  Judge Stanton agreed with the defendants, holding that under the Supreme Court’s decision in CTS Corp. v. Waldburger, the FDIC Extender Statute applied only to statutes of limitation and did not alter the applicable statute of repose.  Order.

NY Court Dismisses Repurchase Suit Against Nomura In Part

On June 26, 2014,  Justice Friedman of the Supreme Court of the State of New York partially granted Nomura Credit & Capital Inc.’s (Nomura) motion to dismiss a repurchase suit brought by Nomura Asset Corporation Alternative Loan Trust, Series 2006-S4 (the Trust). The Trust alleged breach of contract in connection with the securitization of $254 million in mortgage loans.  The court dismissed the plaintiff’s claim for rescission and for breach of contract.  The court did not dismiss the plaintiff’s breach of contract claims based on the statute of limitations, holding that those claims accrued on the Closing Date of the transaction and were brought within six years of accrual.  The court also denied Nomura’s motion to dismiss based on the contractual sole remedy provision, holding that equitable damages for failure to repurchase loans are allowable where specific performance is unavailable.  Order.

RBS Settles MBS Claims with Assured

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.

Bank of America and U.S. Bank Reach Settlement With Investors

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.

Breach of Contract Claims against J.P. Morgan and EMC Dismissed as Time-Barred

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.

Goldman Reaches Settlement with FHFA

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 AgreementFreddie Mac Agreement.

Guaranty Bank RMBS Lawsuits Dismissed As Time-Barred

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 OrderMerrill/RBS Order.

Judge Rakoff Approves SEC’s $285M Settlement With Citigroup

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.  Opinion10-Q Excerpt.