On November 12, Judge Susan Richard Nelson of the United States District Court for the District of Minnesota declined to dismiss claims by the Residential Capital LLC (ResCap) bankruptcy trust against six mortgage originators. ResCap alleges that the six originators—Academy Mortgage Corp., First California Mortgage Corp., Provident Funding Associates, L.P., T.J. Financial, Inc., Universal American Mortgage Company, LLC, and Wells Fargo Financial Retail Credit, Inc.—breached representations and warranties in regard to almost $4 billion in RMBS. ResCap asserts claims for breach of representation and warranty and for indemnification. Judge Nelson held that ResCap’s allegations stated a claim for breach of warranty without identifying specific allegedly breaching loans. The Court further held that ResCap had standing to bring these claims, and the claims were not time-barred because they were brought within the two-year period for debtor claims under the Bankruptcy Code. Order.
On November 17, 2014, Justice Shirley Werner Kornreich of the Supreme Court for the State of New York, New York County approved the stipulation of voluntary discontinuance between Assured Guaranty Municipal Corp., DB Structured Products, Inc., and ACE Securities Corp. DB Structured Products’s third-party claim against Greenpoint Mortgage Funding, Inc. was also voluntarily discontinued. Monoline insurer Assured filed the action in 2010, alleging breaches of representations and warranties in a 2006 RMBS transaction. Stipulation of Voluntary Discontinuance.
On November 18, Judge Denise Cote of the United States District Court for the Southern District of New York granted the Federal Housing Finance Agency’s motion for partial summary judgment on the statute of limitations defense asserted by Nomura and related entities. FHFA, as conservator for Fannie Mae and Freddie Mac, alleges that Nomura made materially false statements in offering documents for RMBS between 2005 and 2007 in violation of Sections 11 and 12(a)(2) of the Securities Act of 1933. Judge Cote found that Fannie and Freddie did not have sufficient information by September 2007 to determine whether the offering documents contained misstatements, and that a reasonably diligent investor in their position would not have investigated the offering documents or discovered the misstatements by that date. As a result, the Court held that FHFA’s claims were not barred by the statute of limitations. Opinion & Order.
On November 17, Bank of America and Merrill Lynch settled securities claims brought by the FDIC related to RMBS sold to United Western Bank. The FDIC, as the receiver for United Western Bank, alleged claims under the Securities Act of 1933 and the Colorado Securities Act against Bank of America, Merrill Lynch, Morgan Stanley, and RBS Securities related to $110 million in RMBS. The case against Morgan Stanley and RBS remains pending. Stipulation.
On November 14, Judge George B. Daniels of the United States District Court for the Southern District of New York dismissed several of U.S. Bank’s repurchase claims against Citigroup Global Markets Realty Corp. U.S. Bank alleged that Citigroup breached representations and warranties with respect to loans underlying $832 million of RMBS. The Court dismissed the trustee’s claim for breach of contract as to loans for which the trustee had not requested repurchase, holding that U.S. Bank did not sufficiently allege that Citigroup actually discovered any breaches of representations and warranties as to those loans. The Court also dismissed the trustee’s claim for anticipatory breach of contract based on repurchase requests sent to Citigroup the same day as the complaint was filed. In addition, Judge Daniels dismissed claims against servicer CitiMortgage, Inc., holding the trustee’s allegations suggesting CitiMortgage should have discovered breaches of representations and warranties in the course of servicing were conclusory and speculative. The case remains pending against Citigroup as to claims for breach of contract with respect to the failure to repurchase 466 loans identified in pre-suit repurchase demands. Order.
The National Credit Union Administration, acting as liquidating agent for five failed credit unions, sued Deutsche Bank National Trust Company (DBNTC) for allegedly breaching its duties as trustee under the governing trust agreements for 121 RMBS trusts with a total original face value of approximately $140 billion. The complaint, filed November 10, in the U.S. District Court for the Southern District of New York, asserts causes of action under the Trust Indenture Act and a provision of the New York Real Property Law known as the Streit Act. The complaint alleges that DBNTC failed to properly review and monitor the loans underlying the RMBS, notify the investors of deficiencies in the loans, take action to address those alleged deficiencies, and enforce the repurchase of defective loans as provided for in the governing agreements. The complaint also alleges that DBNTC failed to exercise proper oversight over the loans’ servicers, including by failing to declare the servicers and master services in default under the agreements. NCUA seeks unspecified damages, equitable relief, pre- and post-judgment interest, and fees and costs. Complaint.
On October 16, the Appellate Division, First Department of the Supreme Court of New York affirmed the dismissal of Ambac Assurance Corporation’s breach of contract claims against EMC Mortgage arising out of an RMBS transaction that Ambac insured. The court held that Ambac, as a third-party beneficiary to the pooling and servicing agreement for the transaction, lacked standing to enforce the repurchase protocol set forth in the PSA, which is the sole available remedy for alleged breaches of representations and warranties related to mortgage loans in the transaction. Instead, the PSA provides the trustee the exclusive right to enforce the repurchase protocol. Opinion.
On September 19, Justice Alan D. Scheinkman of the New York Supreme Court for Westchester County granted in part MBIA’s motion for leave to amend its complaint against J.P. Morgan in an action related to a Bear Stearns RMBS transaction that MBIA insured. In May, the court granted summary judgment in favor of J.P. Morgan on the sole claim of fraud in the original complaint. In that decision, however, the court noted that while MBIA could not demonstrate fraud, there may have been unpleaded causes of action for fraudulent concealment and/or relief available under Section 3105 of the New York Insurance Law. MBIA then sought to file an amended complaint containing those two new claims and an amended fraud claim. As all of these claims were viable at the time of the original complaint, J.P. Morgan argued that the claims were precluded by the doctrine of res judicata based on the court’s summary judgment decision. The court rejected this argument and held that res judicata only applied to the pleaded fraud claim and not to the new claims. As to the substance of MBIA’s amended claims, the court granted leave to file an amended complaint on the fraudulent concealment claim alone, dismissing the previously pleaded fraud claim and MBIA’s Section 3105 claim. Order.
On September 30, Judge Sam Lindsay of the U.S. District Court for the Northern District of Texas granted a motion to dismiss plaintiff Town North Bank’s amended complaint against UBS, Morgan Stanley, Merrill Lynch, and J.P. Morgan, among others. Town North Bank asserted claims under Section 10(b) of the Securities Exchange Act of 1934 and the Texas Securities Act. In March 2013, Judge Lindsay had denied the defendants’ motion to dismiss but reviewed the briefs anew when the defendants filed a motion for interlocutory appeal. Upon that review, Judge Lindsay sua sponte vacated the March 2013 order and granted the motion to dismiss. In particular, Judge Lindsay found claims related to certain of the alleged misstatements time barred under the applicable statute of repose found in 28 U.S.C. § 1658(b). As to the remaining statements, Judge Lindsay found that Town North Bank had not adequately alleged that the Defendants “made” the statements in light of the U.S. Supreme Court’s recent ruling in Janus Capital Group v. First Derivative Traders. The court also concluded that Town North Bank did not allege scienter with sufficient particularity because the amended complaint lacked factual allegations from which the court could reasonably infer that Defendants were aware of any false statements at the time they were made. Order.
On September 17, HSBC Bank USA NA, as trustee for an RMBS trust, filed suit in the Supreme Court for the State of New York against Nomura Credit & Capital Inc. over approximately $613 million in RMBS issued in May 2007. The complaint alleges that Nomura failed to repurchase securitized mortgage loans that breached representations and warranties made by Nomura concerning, among other things, the loans’ credit characteristics, origination, and compliance with applicable laws and regulations. The lawsuit seeks Nomura’s repurchase of the allegedly defective loans or equivalent money damages. The complaint follows the dismissal of a prior complaint in federal court that was dismissed for lack of subject matter jurisdiction. Complaint.