Posts by: Hannah M. Junkerman

First Department Affirms Partial Dismissal of RMBS Repurchase Claims

 

On December 29, 2016, the New York Supreme Court, Appellate Division, First Department, in a 4‑1 decision, affirmed a 2015 New York Supreme Court order dismissing certain claims in an RMBS action brought by Trustee U.S. Bank National Association, solely in its capacity as Trustee of the J.P. Morgan Alternative Loan Trust 2007-A2 (the “Trustee“) against originator Greenpoint Mortgage Funding (“Greenpoint“). On May 31, 2013, the last day before the statute of limitations expired, the Trustee filed suit alleging that Greenpoint had breached certain representations and warranties with respect to mortgage loans that it originated. The Trustee, however, did not send out any breach notices until after it filed its action, and none of the breach notices provided for a 60‑day cure period, as required under the applicable Mortgage Loan Sale Agreement. The First Department affirmed the Supreme Court’s order dismissing the Trustee’s claims that Greenpoint was notified of breaching mortgages, but failed to cure. The panel held that the breach notices and the 60‑day cure period were conditions precedent to filing the lawsuit, and the breach notices could not “relate back because the inherent nature of a condition precedent to bringing suit is that it actually precedes the action.” The First Department, however, also affirmed the Supreme Court’s denial of Greenpoint’s motion to dismiss to the extent that the Trustee’s breach of contract claims were predicated on allegations of Greenpoint’s independent discovery of breaches. The First Department held that such allegations do not require breach notices to be sent before an action is commenced. The panel also held that allegations that Greenpoint created and had full access to the loan files, and therefore knew or should have known of the breaches, were sufficient to withstand a motion to dismiss. Order.

Deutsche Bank Settles DOJ RMBS Claims for $7.2 Billion

 

On December 23, 2016, Deutsche Bank AG (“Deutsche Bank“) announced that it had reached a settlement in principle with the United States Department of Justice (“DOJ“) to resolve possible civil claims arising from Deutsche Bank’s issuance and underwriting of RMBS in the years leading up to the financial crisis. The $7.2 billion settlement includes a $3.1 billion civil penalty, with an additional $4.1 billion paid in the form of consumer relief (including loan modifications and other types of borrower assistance).

MassMutual and RBS Settle RMBS Litigation

On August 12, 2016, Massachusetts Mutual Life Insurance Co. (“MassMutual”) and RBS jointly moved to dismiss MassMutual’s $235 million RMBS claim, stating that the parties had reached a confidential settlement agreement. MassMutual filed the lawsuit in 2011, alleging violations of the Massachusetts Uniform Securities Act.  MassMutual claimed that the defendants made material misrepresentations about the characteristics of mortgage loans that RBS securitized in transactions in which MassMutual invested between 2005 and 2007.  The court entered a final dismissal order on August 15, 2016.  Joint Motion of Dismissal. Order of Dismissal. MassMutual settled similar claims against Barclays Capital Inc. on March 29, 2016 (covered here).

Ninth Circuit Revives RMBS Claims against Nomura

On August 15, 2016, the Ninth Circuit Court of Appeals vacated the Central District of California’s order dismissing claims brought by the National Credit Union Administration Board (“NCUA”), as liquidating agent of Western Corporate Federal Credit Union (“Wescorp”), against Nomura Home Equity Loan, Inc. (“Nomura”) under the Securities Act of 1933.  In 2014, the district court granted Nomura’s motion to dismiss claims that it had made materially false and misleading statements in the offering documents in respect of certificates sold to Wescorp in 2006 and 2007, holding that the NCUA’s claims were barred by the statute of repose established in Section 13 of the 1933 Act, which runs three years after the securities were offered or sold.  The Ninth Circuit disagreed with the district court, concluding that both the text and the legislative purpose of the Extender Statute in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) indicate that Congress intended it to supplant the 1933 Act statute of repose and to further a policy of “protecting the government’s right to recovery.” Opinion at 13.  The Ninth Circuit further concluded that, although the text of the Extender Statute only mentions contract and tort claims, because its dictate is to cover “all actions” brought by the NCUA, it also applies to statutory claims, such as the 1933 Act claims at issue in this case.  Thus, the Ninth Circuit held that the NCUA’s claims against Nomura are not time-barred and remanded the case to the Central District for further proceedings. Summary.

 

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

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.

Morgan Stanley and Natixis Win Dismissal of RMBS Claims

On July 14, 2015, Justice Friedman of the New York State Supreme Court for the County of New York granted in part Morgan Stanley & Co.’s motion to dismiss fraud claims brought by HSH Nordbank AG (“HSH”) and Carrera Capital Finance Limited (together, “Plaintiffs”) in connection with 21 RMBS securitizations, and granted in full a separate motion to dismiss filed by Natixis Real Estate Capital LLC (“Natixis”) against the same Plaintiffs.

Justice Friedman ruled that all claims against Natixis were barred by the statute of limitations for fraud in New York, finding that Plaintiffs could have discovered the alleged fraud at least two years prior to filing.  Justice Friedman also dismissed certain of HSH’s fraud claims because it did not sufficiently allege that the certificates’ original purchaser had intended to assign the claims to HSH.  The court will permit claims arising from certificates purchased directly by Plaintiffs to proceed.  Order.

Judge Scheindlin Denies Motion to Dismiss NCUA Claims

On July 20, 2015, Judge Scheindlin of United States District Court for the Southern District of New York denied HSBC Bank USA, NA’s (“HSBC”) motion to dismiss claims brought by the National Credit Union Administration (“NCUA”) related to the administration of mortgage-backed securities worth $2 billion.  NCUA alleges that HSBC failed to perform its duties as the indentured trustee for 37 RMBS trusts.  Judge Scheindlin rejected HSBC’s argument that NCUA lacked standing to bring the suit because most of the debt had been resecuritized, and held that NCUA has standing to pursue the claims against HSBC derivatively because the current trustee of the resecuritized loans tacitly consented to the action by remaining neutral.  Opinion and Order.

JPMorgan Settles RMBS Class Action

On July 17, 2015, lead plaintiffs filed a stipulation and agreement settling a 2009 class action lawsuit against JPMorgan Chase & Co. (“JPMorgan”) alleging that the bank had misrepresented the quality of loans underlying $10 billion worth of mortgage-backed securities it sold.  Without admitting any wrongdoing JPMorgan agreed to pay plaintiffs $388 million, subject to court approval.  Stipulation and Agreement of Settlement.

HSBC Motion to Dismiss Denied in Part in Trustee RMBS Suits by Blackrock, Royal Park Investments, and Phoenix Light

On June 1, 2015, Judge Shira Scheindlin of the United States District Court for the Southern District of New York issued a Decision and Order granting in part and denying in part HSBC Bank USA, National Association’s (“HSBC”) motion to dismiss three related actions brought by BlackRock, Royal Park Investments SA/NV, and Phoenix Light SF Ltd., claiming $34 billion in damages.  The suits allege that HSBC breached a fiduciary duty to investors as a trustee in 283 residential mortgage backed securities trusts by failing to require lenders and bond issuers to buy back loans that breached representations and warranties. Judge Scheindlin rejected HSBC’s argument that the plaintiffs had failed to plead breaches of representations and warranties on a sufficiently granular basis and also held that plaintiffs had sufficiently alleged that the bank had specific knowledge of breaches of the representations and warranties. Judge Scheindlin dismissed claims for negligent misrepresentation and negligence as time-barred.  Judge Scheindlin gave the plaintiffs 30 days to amend their complaint to attempt to cure the deficiencies in their dismissed claim.  Order.