New York’s Highest Court Affirms Dismissal of RMBS Suit Against DB Structured Products as Time-Barred

On June 11, 2015, the New York Court of Appeals issued its decision in the closely-followed case of ACE Securities Corp., Home Equity Loan Trust, Series 2006-SL2 v. DB Structured Products, Inc.  New York’s highest court affirmed the First Department’s dismissal of an action brought by HSBC, as Trustee of the Home Equity Loan Trust, Series 2006-SL2 (“Trust”), against DB Structured Products (“DBSP”) on timeliness grounds, concluding that a cause of action for breach of the representations and warranties accrues on the closing date of the transaction.  The Court held that New York’s six-year statute of limitations for such breach of contract claims runs from the date the representations and warranties are made.  While the trial court reasoned that DBSP’s cure or repurchase obligation under the Pooling and Servicing Agreement (“PSA”) was ongoing, the Court of Appeals explained that DBSP represented and warranted certain facts about the mortgage loans as they existed when the PSA and Mortgage Loan Purchase Agreement were executed and expressly stated they did not survive the closing date.  The Court noted that it makes sense that DBSP “[did] not guarantee payment for the life of the transaction because loans may default 10 or 20 years after they have been issued for reasons entirely unrelated to the Sponsor’s representations and warranties.”  The court also held that a timely repurchase demand and subsequent expiration of the cure period was not a substantive condition precedent that delayed the accrual of the cause of action; instead, the Court held that it was a procedural prerequisite to suit.  Order.