Posts by: Darren S. Teshima

Justice Friedman of the New York Supreme Court Dismisses Two FHFA Repurchase Actions

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On April 12, 2016, Justice Marcy Friedman of the New York Supreme Court granted motions to dismiss in two RMBS breach of contract actions filed by FHFA against Morgan Stanley ABS Capital I Inc. (“MSAC”) and Morgan Stanley Mortgage Capital Holdings LLC (“Morgan Stanley”).  In the decisions, he Court dismissed the actions on similar grounds and granted the parties the opportunity to brief claims for failure to notify, in light of the October 13, 2015 First Department’s decision in Nomura Home Equity Loan Inc. Series 2006-FM2 et al. v. Nomura Credit & Capital Inc.

Like Justice Friedman’s ruling last month in ACE Securities v. DB Structured Products, Inc., which we previously covered, the Court held that both actions were not rendered untimely by the Plaintiff’s failure to file repurchase demand condition precedent prior to the filing of the summons with notice.  However, the FHFA, as certificate holder, lacked standing to commence the action and thus the Trustee’s cause of action was untimely because it did not relate back to the FHFA’s summons with notice.  In so holding, the Court rejected the Trustee’s arguments in both cases that the action was timely commenced, and also that the accrual clause in the RMBS extended the statute of limitations, and that the federal Housing and Economic Recovery Act of 2008, applicable to certain actions brought by FHFA, extended the limitations period.  Finally, the Court also held that no tolling agreements saved Trustee’s claims, and also dismissed the causes of action for breach of the implied covenant of good faith and fair dealing, breach of repurchase obligations, and anticipatory breach. Decision 116. Decision 134.

RMBS Claims Against Bank of New York Mellon Remain in Federal Court

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On December 18, Judge William Pauley III of the U.S. District Court for the Southern District of New York denied Bank of New York Mellon’s motion to dismiss RMBS claims regarding fourteen trusts and one indenture trust for lack of subject matter jurisdiction.  With respect to the indenture trust, the Court held that it did have original jurisdiction over that claim because the federal Trust Indenture Act (“TIA”) implicitly creates a private right of action.  Judge Pauley exercised supplemental jurisdiction over plaintiffs’ Pooling and Servicing Agreement (“PSA”) claims for the remaining fourteen trusts.  Citing Judge Shira Scheindlin’s March 31, 2015 decision in BlackRock v. HSBC, Judge Pauley held that both the TIA and PSA claims share a common nucleus of operative fact because all of the trusts at issue in the case were sponsored by Countrywide affiliates and serviced by Countrywide Home Loan Servicing.  Judge Pauley dismissed any concern that allowing a single TIA claim to create jurisdiction over fourteen state law claims would “allow a federal tail to wag a state dog,” noting Countrywide’s imprint on every transaction as sponsor and servicer.  Judge Pauley also highlighted that the case has been pending in the S.D.N.Y. for over four years and to create parallel proceedings would be both inconvenient and against the interests of judicial economy. Decision.

New York Appellate Court Allows Repurchase Action Against J.P. Morgan To Proceed

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On December 1, 2015, the First Department of the Appellate Division of the Supreme Court for the State of New York affirmed the denial of a motion to dismiss an action brought by Bank of New York Mellon Corporation against J.P. Morgan Mortgage Acquisition Corporation (“JPMMAC”) and WMC Mortgage LLC.  The case is based on claims that JPMMAC breached its obligation to repurchase mortgage loans originated by WMC that violated certain representations and warranties.  At issue in JPMMAC’s appeal was a representation and warranty that stated that “[w]ith respect to the period from [the] Whole Loan Sale Date to and including the Closing Date” the information in the Mortgage Loan Schedule (“MLS”) and the loan tape “is true, correct, and complete in all material respects.” JPMMAC argued that this representation and warranty was a “bring-down” provision that only provided against defects that arose after JPMMAC purchased the loans from WMC, and did not apply to alleged defects that existed at the time WMC sold the loans to JPMMAC.  The Appellate Division rejected JPMMAC’s arguments, holding that the contractual language was not so limited.  Decision.

Investors File Putative Class Action Against Citibank for Allegedly Failing to Comply with RMBS Trustee Duties

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On November 24, 2015, a group of investors, led by Pacific Investment Management Co. (“PIMCO”), filed suit in the Supreme Court of the State of New York against Citibank, N.A.,   as trustee of 25 private-label RMBS Trusts. This state court complaint follows the Southern District of New York’s dismissal of a similar action for lack of jurisdiction over claims relating to the majority of trusts, as discussed here.  The investors allege that Citibank  knew the trusts contained loans that breached seller representations and warranties, and that Citibank failed to perform its contractual obligations to require the sellers to cure or repurchase the defective loans.  Plaintiffs further allege that Citibank breached its duties to enforce the obligations of loan servicers by failing to redress alleged servicer misconduct.  The complaint also alleges breaches of Citibank’s fiduciary duties and a violation of New York’s Streit Act.  Complaint.

U.S. Supreme Court Denies S&P Investors’ Petition for Certiorari

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On November 2, 2015, the United States Supreme Court denied investors’ petition for review of a Second Circuit decision affirming the dismissal of their class action against Standard & Poor’s Rating Services’ parent, McGraw-Hill Cos. Inc., and two of its corporate officers.  In that case, the plaintiff pension fund had made claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Section 15 of the Securities Act of 1933, alleging that S&P’s Ratings Services had intentionally made false and misleading statements to investors about the accuracy of its credit ratings for mortgage-backed securities.  As we previously covered, the Second Circuit had affirmed a decision by Judge Sidney H. Stein of the Southern District of New York dismissing the suit and holding that S&P’s ratings were “mere commercial puffery” and could not form the basis for a securities fraud claim.  In its certiorari request, Plaintiff argued that Judge Stein’s and the Second Circuit’s broad interpretation of “puffery” conflicted with Supreme Court precedent, Omnicare Inc. et al. v. Laborers District Council Construction Industry Pension Fund by holding that the alleged knowing falsity of S&P’s statements is irrelevant.  Petition for Cert.  Order List.

 

Goldman Sachs Settles CDO Class Action

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On November 3, 2015, Goldman Sachs Group Inc. agreed to settle a lawsuit brought by a class of investors over Goldman’s sale of two collateralized debt obligations.  The settlement agreement comes on the heels of a September 8, 2015 summary judgment decision for Goldman that we recently covered, which found that Plaintiffs had failed to show evidence that Goldman Sachs knew about the risks associated with the CDOs.  The settlement amount was not disclosed.  Settlement Announcement.

Second Circuit Holds that Trust Indenture Act Does Not Apply and Dismisses RMBS Investor Claims Against BNY Mellon

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On December 23, the United States Court of Appeals for the Second Circuit dismissed claims against Bank of New York Mellon, as trustee, by four pension funds in a putative class action relating to 530 Countrywide RMBS trusts worth $424 billion. The Second Circuit affirmed the district court’s holding that the plaintiffs did not have standing to assert claims related to certificates issued by trusts in which no plaintiff ever invested. The court further held that the Trust Indenture Act (TIA) does not apply to the trusts because they are “certificate[s] of interest or participation in two or more securities having substantially different rights and privileges” and therefore within an exemption to the TIA. As a result, the court reversed the district court’s decision denying the bank’s motion to dismiss claims under the TIA.  Decision.

U.S. Bank Sues Citigroup in Connection with $528 Million of RMBS

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On December 22 and 23, U.S. Bank National Association, as trustee for three RMBS trusts, filed three separate summonses with notice in the Supreme Court of the State of New York. U.S. Bank alleges that Citigroup misrepresented the quality of mortgage loans underlying $528 million in RMBS, and that it breached its duties as servicer by failing to notify the trustee of representation and warranty breaches that it discovered. The trustee seeks compensatory and rescissory damages, along with repurchase of loans not complying with the applicable representations and warranties.  Summons with Notice (2007-AMC2).  Summons with Notice (2007-AHL2).  Summons with Notice (2007-AR7).