SDNY Denies Royal Park’s Request to Sample in RMBS Trustee Suit


On November 18, Judge Gregory H. Woods of the Southern District of New York denied plaintiff investor Royal Park Investments SA/NV’s (Royal Park) motion to allow Royal Park to engage sampling experts to perform analyses on samples of loans to extrapolate information about the quality of those loans to all the loans in the trusts. Royal Park brought breach of contract, breach of the duty of trust, and violations of the Trust Indenture Act (TIA) claims against Bank of New York Mellon (BNYM) as trustee for loans included in five RMBS that allegedly breached the representations and warranties made in the governing agreements. Royal Park sought to use sampling to find a breach rate that Royal Park would argue that BNYM would have uncovered if it had reasonably investigated each trust at issue. Judge Woods found that Royal Park had not established, as a threshold matter, that BNYM had a duty to investigate the quality of the loans as a prudent trustee. Therefore, under FRCP 26, which limits discovery where “the burden or expense of the proposed discovery outweighs its likely benefit,” the extensive costs both parties would incur to perform sampling-related expert discovery was not proportional to the needs of the case. Though, unlike other decisions in lawsuits against RMBS trustees, this decision did not go so far as to conclude that Royal Park must prove its damages on a loan-by-loan basis. Rather, Judge Wood ruled that sampling would only be cost-effective if Royal Park proves BNYM had a duty to investigate the collateral and noted that because discovery is ongoing it may still put forth sufficient evidence to support its theory. Royal Park Decision.