On May 18, 2015, Judge Katherine Forrest of the United States District Court for the Southern District of New York dismissed claims in two suits brought by private investors and the National Credit Union Association, respectively, against U.S. Bank and Bank of America in their capacity as trustees for RMBS trusts. The lawsuits asserted several causes of action arising out of the trustees’ alleged failure to fulfill their contractual, statutory, and fiduciary obligations to hundreds of RMBS trusts.
In the first case, brought by a number of institutional investors led by BlackRock, Judge Forrest dismissed claims brought under the federal Trust Indenture Act as to 810 of the 843 trusts at issue because they were governed by Pooling and Servicing Agreements (“PSAs”), rather than indentures, and the TIA does not apply to PSA trusts. She declined to exercise supplemental jurisdiction over the state law claims asserted in connection with the 810 PSA Trusts, holding that allowing 33 indenture trusts to pull in another 810 would allow “a federal tail to wag a state dog.” For the remaining 33 indenture trusts, Judge Forrest dismissed the claims because the plaintiffs failed to make a demand on the proper party (the “Owner Trustee”) or allege any that such demand would have been futile. Judge Forrest granted plaintiffs leave to amend as to the indenture trusts. Order.
In the second case, brought by NCUA, Judge Forrest dismissed claims as to 74 out of the 82 Trusts at issue on standing grounds. Judge Forrest held that the Amended Complaint failed to demonstrate that NCUA retained any right to sue when it re-securitized its certificates in the 74 trusts as part of the NCUA Guaranteed Note Program. She rejected NCUA’s statutory standing argument, holding that 12 U.S.C. § 1787 does not authorize NCUA to sue on behalf of separate statutory trusts created to re-securitize the CCUs’ assets. Additionally, Judge Forrest held that the PSAs did not allow third party beneficiary status to extend beyond direct certificateholders, meaning that NCUA no longer had standing once it ceased being a certificateholder following the re-securitization. Order.
On April 22, 2015, Bank of America and Merrill Lynch reached an agreement with several Prudential Insurance Co. affiliates to settle two lawsuits brought by Prudential. Prudential had alleged that Bank of America and Merrill Lynch made false statements about the quality of $2.1 billion worth of residential mortgage backed securities they sold to Prudential. The parties filed a stipulation of dismissal with prejudice but the settlement terms are otherwise undisclosed. Stipulation.
On April 2, 2015, plaintiffs BNP Paribas Mortgage Corporation and BNP Paribas and defendant Bank of America filed a Joint Stipulation of Dismissal with Prejudice stating that both parties had reached an agreement to settle claims arising out of Bank of America’s handling of $480.7 million worth of mortgage-backed notes issued by Taylor Bean and Whitaker’s Ocala Funding LLC. Plaintiffs Complaint alleged that Bank of America, which served as agent, custodian, depositor, and Indentured Trustee of the Ocala facility, failed to live up to its contractual obligations to secure and protect the cash and mortgage loans collateralizing the notes. The details of the settlement are not yet public. Joint Stipulation.
On February 6, 2015, Judge Stanley Chesler of the United States District Court for the District of New Jersey granted in part and denied in part Bank of America’s motions to dismiss two related cases filed against it by several Prudential Insurance Company affiliates. Prudential asserted common law fraud, misrepresentation, and RICO claims against several Bank of America entities arising out of Prudential’s investment in $1.9 billion in RMBS. Judge Chesler dismissed Prudential’s fraud claim, holding that Prudential failed to adequately allege falsity and/or scienter in connection with alleged misstatements concerning occupancy status, appraisals, and credit ratings. He also held that, for the 21 securitizations at issue for which Bank of America served as underwriter only, Prudential failed to allege with the required specificity which Bank of America entity made which challenged representations. Judge Chesler dismissed both of Prudential’s negligent misrepresentation claims. He granted Prudential limited leave to amend in connection with the fraud claim relating to those securitizations for which Bank of America served as underwriter only. Opinion.
On December 23 and 24, Phoenix Light SF Limited and other RMBS certificateholders filed suit against HSBC, Wells Fargo, Deutsche Bank, Bank of New York Mellon, U.S. Bank, and Bank of America in the United States District Court for the Southern District of New York regarding $2.4 billion in RMBS. The complaints assert causes of action under the Trust Indenture Act and a provision of the New York Real Property Law known as the Streit Act, as well as under state law for breach of contract, breach of fiduciary duty, negligence, gross negligence, and negligent misrepresentation. Plaintiffs allege that the trustees breached their duties under the governing trust agreements by failing to notify the investors of deficiencies in the loans, failing to take action to address those alleged deficiencies, and failing to require the repurchase of defective loans. Plaintiffs seek compensatory damages and unspecified equitable relief. HSBC Complaint. Wells Fargo Complaint. Deutsche Bank Complaint. BNY Mellon Complaint. U.S. Bank and Bank of America Complaint.
On December 27, Ambac Assurance Corporation filed a complaint against several Countrywide entities and Bank of America Corporation in New York state court, seeking to recover at least $600 million in damages in connection with claims payments Ambac allegedly made under insurance policies it issued on eight RMBS trusts. Ambac alleges that between 2005 and 2007, Countrywide made false and misleading statements at meetings with Ambac and in prospectus supplements and loan tapes issued in connection with the trusts that induced Ambac to issue its insurance policies. Ambac asserts a cause of action for fraudulent inducement against the Countrywide entities and a cause of action for successor liability against Bank of America. Complaint.
On November 25, the United States Court of Appeals for the Second Circuit upheld the dismissal of IKB Deutsche Industriebank AG’s suit against Bank of America. IKB alleged that BofA fraudulently misrepresented the quality of loans underlying mortgage backed securities sold in 2005 and 2006. The court held that the complaint’s generalized allegations that BofA knew of claimed mortgage defects by virtue of access to due diligence reports prepared by Clayton and BofA’s own due diligence procedures were not sufficient to plead fraudulent intent. The court also affirmed dismissal of IKB’s claim for fraud relating to representations about the transfer of mortgages to the issuing trust, holding that these representations constituted promises to perform in the future and thus were not the proper subject of a fraud claim absent allegations that there was an intent not to perform at the time the promises were made. Summary Order.
On October 30, Bank of America notified Judge Katherine B. Forrest of the United States District Court for the Southern District of New York of a planned settlement of an action brought by pension funds in 2012. The funds had alleged that Bank of America and U.S. Bank violated their duty to ensure that the loans underlying 19 Washington Mutual RMBS portfolios did not contain missing, defective, or incomplete documents, and to ensure that defective loans were removed from the trusts. The complaint included claims for violating the Trust Indenture Act of 1939, breach of contract, and breach of the implied covenant of good faith and fair dealing. Letter. Complaint.
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.
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.
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