5th Circuit Revives FDIC’s Suit Against Goldman, Deutsche Bank, and Royal Bank of Scotland

On August 10, 2015, the Fifth Circuit revived a securities fraud suit brought by the Federal Deposit Insurance Corporation (“FDIC”) as receiver for Guaranty Bank against Goldman Sachs & Co., Deutsche Bank AG, and the Royal Bank of Scotland PLC. The FDIC brought claims under the federal Securities Act and the Texas Securities Act, alleging that the defendants made false and misleading statements in selling and underwriting $2.1 billion in RMBS to Guaranty Bank. The suit was filed within the limitations period in the FDIC Extender Statute, 12 U.S.C. § 1821(d)(14), but outside of the limitations period in the Texas Securities Act. The district court held that state law statutes of repose are not pre-empted by the FDIC Extender Statute, and it therefore dismissed the case as untimely. The Fifth Circuit reversed and remanded. The appellate court held that the FDIC Extender Statute preempts all state limitations periods, whether characterized as statutes of limitations or as statutes of repose. The court distinguished the Supreme Court’s decision in CTS Corp. v. Waldburger, 134 S. Ct. 2175 (2014), which held that a similar extender provision in CERCLA did not preempt state statutes of repose. The Fifth Circuit characterized the similarities between the two provisions as “superficial,” and cited legislative history as supporting Congress’s intent to preempt state statutes of repose.  Opinion.

Phoenix Light Sues Five RMBS Trustees Over $2.4 Billion in RMBS

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 ComplaintWells Fargo ComplaintDeutsche Bank ComplaintBNY Mellon ComplaintU.S. Bank and Bank of America Complaint.

RMBS Class Action Against Deutsche Bank Dismissed

On December 18, Deutsche Bank was dismissed from an RMBS action brought by the New Jersey Carpenters Health Fund regarding certificates backed by RALI and HarborView trusts.  Judge Harold Baer of the United States District Court for the Southern District of New York granted in part and denied in part defendants’ motion to reconsider their motions to dismiss in light of the Second Circuit’s 2013 decision that claims brought under Section 13 of the Exchange Act are not subject to equitable tolling of the statute of limitations by a prior class action complaint.  The court dismissed claims with respect to two HarborView trusts and all claims against Deutsche Bank securities as untimely because plaintiffs could no longer rely on equitable tolling.  Claims against Citigroup and Goldman Sachs remain in the case.  Decision.

European Commission Imposes EUR 1.71 Billion Fine for Participating in Illegal Cartels

On December 4, the European Commission announced that it had fined eight international banks a total of more than 1.7 billion for their participation in illegal cartels in markets for financial derivatives covering the European Economic Area.

Using the cartel settlement procedure, the Commission reached two separate decisions; one decision involved seven separate bilateral infringements relating to interest rate derivatives denominated in Japanese yen.  The companies involved were UBS, RBS, Deutsche Bank, JPMorgan, Citigroup and RP Martin.

The other decision was made in relation to a collusion by four banks in relation to interest rate derivatives denominated in euro.  The banks were Barclays, Deutsche Bank, RBS and Société Générale.  Utilizing the Commission’s 2006 Leniency Notice, Barclays and UBS received complete immunity from fines.  Announcement.

Deutsche Bank Files $666 Million Suit Against GE Capital

On September 13, Deutsche Bank, acting in its capacity as Trustee of the Morgan Stanley ABS Capital I Inc. Trust, Series 2007-HE6 (the Trust), filed a lawsuit in the United States District Court for the District of Connecticut against General Electric Capital Corp. and its subsidiary, WMC Mortgage L.L.C.  Plaintiff alleges that WMC breached representations and warranties concerning 3,399 mortgage loans securitized into the Trust.  Plaintiff also alleges that WMC breached certain repurchase, notification and indemnification obligations.  Plaintiff seeks specific performance of the alleged repurchase obligations or damages totaling at least $500 million.  Complaint.

Deutsche Bank Sued for Fraud in Connection with US$535 Million in RMBS

In a lawsuit filed in New York State Court on August 5, Royal Park Investments SA/NV (RPI) alleged that several Deutsche Bank affiliates fraudulently induced it to invest in more than US$535 million worth of RMBS in connection with 18 different offerings.  RPI alleges that the offering documents for the RMBS contained material misrepresentations and omissions concerning compliance with underwriting guidelines, loan-to-value ratios, owner occupancy rates, credit ratings, and transfer of title of the underlying mortgage loans.  RPI further alleges that Deutsche Bank knew its representations were false but concealed that information and even used it to take a short position on different RMBS while still marketing these RMBS certificates to RPI as a good investment.  RPI asserts claims for common law fraud, fraudulent inducement, aiding and abetting fraud, negligent misrepresentation, and rescission based on mutual mistake.  Complaint.

Federal Court Dismisses In Part Putback Claims Against Deutsche Bank

On July 23, Judge Robert W. Sweet of the United States District Court for the Southern District of New York dismissed in part a suit asserting putback claims against Deutsche Bank.  HSBC, as trustee of the securitization at issue, brought suit for (i) alleged breaches of Deutsche Bank’s representations and warranties regarding underlying mortgage loans and (ii) Deutsche Bank’s failure to repurchase the loans upon request by the trustee.  The court held that failure to provide the repurchase remedy is not an “independent” breach of contract.  The court also dismissed HSBC’s declaratory judgment claim for reimbursement of its out-of-pocket expenses as duplicative of HSBC’s breach of contract claims.  The court held, however, that plaintiff had adequately pled claims for breach of contract, including as to mortgages no longer held by the trust, and could pursue money damages allegedly required to make the plaintiff whole, as well as rescissory damages.  Order.

Bundesbank Opens Deutsche Bank Investigation

The German central bank, the Bundesbank, has launched an investigation into Deutsche Bank following claims that it lost billions on credit derivatives during the financial crisis.  Investigators from the Bundesbank are scheduled to fly to New York next week as part of an inquiry into allegations that misvaluing credit derivatives allowed Deutsche to hide up to $12 billion in losses, which helped it avoid a government bailout.  The investigators will interview people, including former employees, who have knowledge of Deutsche’s credit derivatives dealings between 2006 and 2009.  It is alleged that had the proper valuations been made on the positions during the relevant period, the losses for the whole portfolio would have exceeded $4 billion and could have risen to $12 billion.

Deutsche Bank has denied the allegations and stated that the allegations were “more than two and a half years old,” and had been the subject of a thorough investigation, which found them “wholly unfounded.”

Bank of America Reaches Pre-Litigation Settlement with NCUA for RMBS Losses

On April 2, the National Credit Union Administration (NCUA), an independent federal agency that supervises and charters federal credit unions, reached a $165 million settlement with Bank of America, stemming from BofA’s sale of RMBS to failed credit unions.  Bank of America did not admit any fault in the agreement.  NCUA previously reached similar settlements with Citigroup, Deutsche Bank and HSBC.  NCUA did not file a lawsuit against Bank of America, although litigation is pending between NCUA and several other financial institutions.  Press Release.

Court Grants in Part Motions to Dismiss Allstate RMBS Lawsuits

On March 15, Judge Eileen Bransten of the Supreme Court of the State of New York granted in part and denied in part motions to dismiss brought by Merrill Lynch, Deutsche Bank and Morgan Stanley entities (together Defendants) in respective lawsuits brought against them by certain Allstate entities related to Allstate’s purchases of RMBS.  The court dismissed Allstate’s negligent misrepresentation claim against all Defendants, concluding that Allstate had not alleged either that Defendants had the required specialized knowledge or that Defendants had a special or privity-like relationship with Allstate.  The court also dismissed all claims as to two of the Deutsche Bank certificates and federal securities claims against Merrill Lynch as untimely, but rejected Defendants’ arguments that other claims were untimely.  The court denied Defendants’ motions to dismiss as to Allstate’s fraud claims.  The court also concluded that Defendants can face liability for distributing statements they allegedly knew to be false, even if the statements were originally made by third parties, such as originators or rating agencies.  Deutsche Bank Order; Merrill Order; Morgan Stanley Order.