On August 18, 2015, Judge Denise Cote of the federal district court for the Southern District of New York addressed the appropriate measure of potential damages in an action by Bank of New York Mellon (BoNY), as RMBS trustee, against WMC Mortgage, LLC and GE Mortgage Holding, L.L.C. In that action, BoNY seeks repurchase of a number of allegedly defective loans as trustee for the GE-WMC Mortgage Securities Trust 2006-1. Judge Cote previously held that where repurchase is unavailable, the trustee may be entitled to damages. On defendants’ motion to exclude the testimony of the trustee’s damages expert, the court held that the trustee’s potential damages are limited to the repurchase price for liquidated loans, as defined in the relevant agreements. One component of that measure is the stated principal balance of the loan; the agreements define the stated principal balance of liquidated loans as “zero.” The trustee’s damages expert had not used this measure. As a result, Judge Cote struck the report of the trustee’s damages expert. The decision reduces potential damages on liquidated loans from $379 million (as calculated by the trustee’s expert) to $13.3 million (the maximum calculated by the defense expert). Order.
GE Mortgage Holding LLC
Judge Cote Grants Partial Summary Judgment in RMBS Suit
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.
Court Denies Motion for Partial Summary Judgment in RMBS Repurchase Litigation
On May 22, 2015, Judge Denise Cote of the United States District Court for the Southern District of New York denied defendants WMC Mortgage, LLC and GE Mortgage Holding, L.L.C.’s motion for partial summary judgment to dismiss certain loan repurchase claims asserted by Bank of NewYork Mellon in its capacity as RMBS Trustee for GE-WMC Mortgage Securities Trust 2006-I. Defendants argued that because certain loans in the trust had been foreclosed-upon and liquidated, the terms of the operative Pooling and Service Agreement barred recovery. Judge Cote rejected this argument. Following New York State courts construing prevailing New York law, Judge Cote held that money damages could be awarded in lieu of the PSA’s “sole remedy” of loan repurchase for a breaching loan where the granting of equitable relief appears to be impossible or impracticable. The court held that the liquidation of a breaching loan presents such a circumstance, and permitted Bank of New York Mellon’s claims as to foreclosed-upon loans to go forward. Order.