Delaware Supreme Court Reverses Dismissal of RMBS Suit Against Morgan Stanley

In an en banc decision, the Delaware Supreme Court reinstated a suit by mortgage loan servicer Central Mortgage Co. (“CMC”) against Morgan Stanley for breach of contract and breach of the implied covenant of good faith and fair dealing. CMC had purchased from Morgan Stanley mortgages that CMC alleges became delinquent. Then-Vice Chancellor Strine of the Delaware Court of Chancery found that CMC had failed to follow the notice requirements in the parties’ Master Agreement to provide Morgan Stanley with sixty days notice to attempt to cure the alleged breaches of that contract. The court held that CMC’s complaint sufficiently pleaded compliance with the notice provision, and factual issues remained as to the adequacy of the notice. The court also held that CMC’s claim for breach of the implied covenant of good faith and fair dealing did not duplicate its breach of contract claims because, it found, CMC pleaded various additional facts that provide a separate basis for the former claim. Decision.