District Court Allows NCUA’s RMBS Suit to Proceed Against RBS

Nat’l Credit Union Admin. Bd. v. RBS Sec. Inc. et al., No. 2:11-cv-05887 (C.D. Cal. July 18, 2011)

On March 16, 2015, Judge George Wu of the United States District Court for the Central District of California denied RBS Securities Inc.’s motion to dismiss the National Credit Union Administration’s second amended complaint.  In July 2011, NCUA sued RBS on behalf of WesCorp, a federal credit union, in order to recover billions of dollars for failed wholesale credit unions claiming investment banks misled them about the nature and quality of offered RMBS.  NCUA alleges that RBS’ underwriters downplayed investment risks and made misrepresentations in offering documents by underestimating the likelihood that borrowers would default on their mortgages.  Judge Wu said that the court would not consider a motion to dismiss parts of claims under F.R.C.P. 12(b)(6).  He noted that his approach differed from that of Judge John W. Lungstrum of the District of Kansas, who agreed to hear motions to dismiss portions of a claim in NCUA v. RBS Secs., Inc., No. 11-2340-JWL (D. Kan. June 20, 2011), denying and granting those motions in part.  Order.

 

US Bank Cannot Revive Majority of MBS Suit Against Citigroup

U.S. Bank NA v. Citigroup Global Markets Realty Corp., No. 1:13-cv-06989 (S.D.N.Y. Oct. 1, 2013)

On March 16, 2015, Judge George B. Daniels of the United States District Court for the Southern District of New York denied the majority of claims in U.S. Bank’s attempt to refile an amended complaint against Citigroup Global Markets Realty Corp. and CitiMortgage, Inc.  U.S. Bank, as RMBS trustee, had sued Citigroup in October 2013, alleging that it breached representations and warranties in a $832 million RMBS deal.  In November 2014, Judge Daniels dismissed most of the claims, but permitted leave to amend.  In addressing U.S. Bank’s proposed amendments, Judge Daniels first held that the cause of action for breach of representations and warranties was untimely as to certain loans under the six-year statute of limitations.  Next, it dismissed U.S. Bank’s second claim that Citigroup independently discovered defects in the loan pool through due diligence or government investigations, because U.S. Bank failed to allege non-speculative facts plausibly showing such discovery.  These rulings were substantially similar to those set forth in the November 2014 order.  Finally, Judge Daniels permitted U.S. Bank’s third cause of action to proceed, holding that the plaintiff sufficiently pleaded that CitiMortgage discovered breaches of representations and warranties during its servicing of the securitized loans, and did not fulfill its contractual duties to notify the parties of the breaches and to enforce Citigroup’s cure or repurchase obligation.  Order

Court Approves RMBS Settlement, Rejecting Institutional Investors’ Attempts to Scuttle It

On March 12, 2015, Judge Katherine B. Forrest of the United States District Court for the Southern District of New York approved a $69 million settlement between the plaintiffs and defendants in Policemen’s Annuity & Benefit Fund of the City of Chicago v. Bank of America and dismissed the case with prejudice.  Plaintiffs, a class of investors, had sued Bank of America and U.S. Bancorp in their capacity as trustees for 50 Washington Mutual RMBS.  Plaintiffs alleged that the trustees breached the Trusts’ Governing Agreements and the duty of food faith and fair dealing, and violated the Trust Indenture Act.  Judge Forrest’s approval of the settlement came one week after she denied certain institutional investors’ motion to intervene in the action for purposes of blocking the settlement.  The institutional investors, led by BlackRock and PIMCO, currently are asserting derivative claims against U.S. Bank, as Trustee, on behalf of 843 RMBS Trusts, and asserted that the settlement excluded them while simultaneously releasing their claims as to RMBS Trusts that overlapped between the two actions.  The Court disagreed, finding that although BlackRock and PIMCO were excused from the settlement, the settlement did not release the claims they were pursuing.  Order Approving Settlement.  Stipulation and Settlement.  Order Re Motion to Intervene.

New York Supreme Court Holds RMBS Claims Are Timely, But Accrual Provision Unenforceable

On March 3, 2015, Justice Marcy S. Friedman of the New York Supreme Court granted in part and dismissed in part Defendant Greenpoint Mortgage Funding, Inc.’s Motion to Dismiss an action in which it was said to have misrepresented the quality of loans underlying an RMBS transaction.  Plaintiff-Trustee, U.S. Bank National Association, argued that the case was timely under a provision of the governing Mortgage Loan Sale Agreement providing that no claim accrues for breach of a repurchase obligation until the purchaser discovers a breaching loan (or is so notified), the seller fails to cure such breach, and the purchaser makes a demand for cure.  The court rejected the plaintiff’s reliance on this accrual provision, citing earlier decisions holding that New York law precludes the extension of an applicable statute of limitations by contract.  The court nonetheless concluded that the action was timely, finding that the plaintiff had pled sufficient facts to state a claim that Greenpoint was aware of breaches within the limitations period.  Additionally, Justice Friedman granted the motion to dismiss the plaintiff’s claims for (1) reimbursement of attorney’s fees, as these were not encompassed by the MLSA’s indemnification provisions, (2) all claims that sought relief beyond that permitted under the contract’s sole remedy provision, and (3) claims for breach of the implied covenant of good faith and fair dealing, which the court found to be duplicative of the underlying contract claim.  Order.

 

RMBS Fraud Claims Against Bank of America Dismissed

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.

Goldman Sachs Settles RMBS Suit

On February 6, 2015, plaintiffs Union Central Life Insurance, Ameritas Life Insurance, and Acacia Life Insurance filed a letter with the court stating that they had reached an agreement with Goldman Sachs to settle claims arising out of the insurance companies’ investments in RMBS sponsored by Goldman Sachs.  The details of the settlement are not public.  The plaintiffs had asserted causes of action for violations of federal securities laws as well as for common law fraud, negligent misrepresentation, and unjust enrichment.  Letter.

S&P Settles RMBS Lawsuits for $1.375 Billion

On February 2, Standard & Poor’s Ratings Services settled claims brought by the Department of Justice, 19 states and the District of Columbia related to credit ratings it issued and maintained for RMBS and CDOs before the financial crisis. As part of the settlement, it agreed to pay a total of $1.375 billion, with $687.5 million paid to the Department of Justice and $687.5 million to the states and District of Columbia.  Settlement Agreement.

Also on February 2, S&P settled similar claims brought by the California Public Employees’ Retirement System (CalPERS). The terms of that settlement agreement have not been made public.

 

SEC Suspends S&P From Rating Certain CMBS As Part Of $77 Million Settlement

On January 21, 2015, the SEC suspended Standard & Poor’s Rating Services (S&P) from rating conduit/fusion CMBS for one year as part of a settlement between McGraw-Hill Financial Inc., S&P’s parent company, and the SEC.  The settlement stems from S&P’s disclosures in 2011 that it would utilize a certain methodology to rate six CMBS transactions and provide a preliminary rating for two others, when it actually used a different methodology, forcing S&P to pull a rating on a $1.5 billion bond that same year.  In addition, S&P agreed to retract an allegedly untrue and misleading article that it published in 2012 and settled another claim that it failed to maintain and enforce internal controls regarding changes to its monitoring standards for certain RMBS.  S&P further agreed to parallel settlements with New York Attorney General Eric Schneiderman and Massachusetts Attorney General Maura Healey.  The rating agency has also agreed to pay more than $77 million to settle these claims with the federal and state regulators ($58 million to the SEC and another $19 million to New York and Massachusetts).  SEC Settlement Order 1SEC Settlement Order 2SEC Settlement Order 3.

Federal Home Loan Bank of San Francisco Settles RMBS Claims Against Banks

On January 15, 2015, the Federal Home Loan Bank of San Francisco (FHLB) agreed to a $459 million settlement with various banks stemming from the sales of billions of dollars of RMBS.  FHLB originally filed the claims in the Superior Court of California, County of San Francisco in 2010 against Bank of America Corp., Credit Suisse Securities (USA) LLC, Countrywide Financial Inc., Deutsche Bank Securities, Inc. and other banks concerning 229 RMBS transactions.  FHLB alleged causes of action for violation of the Securities Act of 1933 and the California Corporate Securities Act as a result of dealers allegedly concealing information and lying about the quality of RMBS sold to FHLB.  It is unclear which banks are involved in the settlement.