First Department Affirms Dismissal of Ambac’s Contract Claims Against EMC

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.

MBIA Allowed to Pursue Fraudulent Inducement Claim Against J.P. Morgan

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.

Court Reverses Itself and Dismisses RMBS Fraud Complaint Against Several Banks

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.

RMBS Trustee Files New Repurchase Action Against Nomura

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.

RMBS Trustee Files New Repurchase Action Against Nomura

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.

HSBC Settles RMBS Claims with FHFA

On September 12, the FHFA and several HSBC affiliates and certain of their current and former officers (collectively, HSBC) announced a US$550 million settlement of claims that the FHFA had brought against HSBC in the Southern District of New York.  FHFA, acting as conservator for Fannie Mae and Freddie Mac, alleged that HSBC made false and misleading statements in offering documents issued in connection with 19 RMBS securitizations.  It brought claims for violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as well as the Virginia and Washington, D.C., Securities Acts.  HSBC did not admit liability or wrongdoing.  Settlement Agreement.

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.

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.

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.

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.