On January 12, 2016, the Appellate Division, First Department, of the New York State Supreme Court affirmed a trial court order granting Morgan Stanley’s motion to dismiss claims brought by Dexia SA’s subsidiary FSA Asset Management LLC (“FSAM”). Plaintiffs asserted fraud claims against Defendants based on allegations that Defendants knowingly misrepresented the quality of more than $626 million in RMBS sold by Morgan Stanley to Plaintiffs in 2006 and 2007. The Court’s ruling rested on a recent New York Court of Appeals decision holding that the right to assert a fraud claim related to a contract or note does not automatically transfer with the respective contract or note, and that there must be some language to evince that intent and transfer such rights. Specifically, the Court found that FSAM’s agreement to deliver “all right, title and interest” in the RMBS to the Dexia Plaintiffs did not transfer the right to bring fraud claims. The Court also concluded that FSAM could not establish damages because it received from the Dexia Plaintiffs the same amount it originally paid for the securities. Opinion.
Jennifer Lee is a Partner in Orrick’s San Francisco office who focuses her practice on complex commercial litigation in the financial services industry. She defends investment banks, corporations and financial services companies and has deep knowledge of the structured finance and mortgage servicing industries, having spent nearly a decade representing financial institutions in million and billion-dollar cases arising from the fallout of the 2009 financial crisis.
Jennifer defends her clients in federal and state litigation across the country that allege fraud, breach of contract, or securities law violations. She is a key member of an Orrick trial team that has shaped the legal landscape of RMBS litigation after the 2009 financial crisis, delivering out-of-the box arguments and innovative solutions for her clients, from initial receipt of pre-litigation demands through expert work, summary judgment and trial.
Jennifer's mortgage-backed securities litigation experience, which spans the last decade, includes:
Jennifer defends her clients in federal and state litigation across the country that allege fraud, breach of contract, or securities law violations. She is a key member of an Orrick trial team that has shaped the legal landscape of RMBS litigation after the 2009 financial crisis, delivering out-of-the box arguments and innovative solutions for her clients, from initial receipt of pre-litigation demands through expert work, summary judgment and trial.
Jennifer's mortgage-backed securities litigation experience, which spans the last decade, includes:
- Representing Credit Suisse Securities in multiple million and billion-dollar actions across the country brought by monoline insurers, trustees, and regulators alleging breaches of representations and warranties, fraud, and securities violations. Recent highlights include conducting direct examination of an expert witness in a trial in February 2023, and securing partial dismissal of claims in December 2023 after arguing a motion to dismiss.
- Representing Goldman Sachs in two RMBS putback actions pending in the Southern District of New York alleging that Goldman breached representations and warranties regarding the characteristics of the deal loans.
- Representing Nationstar in a breach of contract dispute alleging that Nationstar failed to properly service and made misrepresentations regarding thousands of early buy-out loans.
- Representing Ocwen Mortgage Servicing in a consumer class action in the Eastern District of California alleging numerous claims including RICO, California consumer protection statutes and fraud.
- Representing Pipe Technologies, Inc. in multiple commercial disputes regarding payment of services.
- Representing a large financial services platform in multiple subpoenas issued for production of documents.
Jennifer is dedicated to pro bono work, including asylum claims, a cause close to her heart as a child of immigrants. Prior to joining Orrick, she held a fellowship position in the Law Reform Unit at the Legal Aid Society of New York, litigating both individual cases as well as class actions.
Jennifer is a leader and advocate for diversity and inclusion initiatives in the legal profession. She leads Orrick's Diversity, Equity and Inclusion Committee in San Francisco. She has served as a fellow for the Leadership Council on Legal Diversity, and is active in the California Minority Counsel Program.
Posts by: Jennifer Lee
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.
U.S. Supreme Court Denies S&P Investors’ Petition for Certiorari
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
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.
Barclays and Wachovia Settle with NCUA
On October 19, 2015, Barclays PLC and Wachovia Capital Markets LLC agreed to pay $325 million and $53 million, respectively, to settle claims brought by the National Credit Union Administration Board (NCUA), as liquidating agent of five credit unions, regarding residential mortgage backed securities purchased by those credit unions. NCUA alleged in the actions (filed in New York, California, and Kansas federal courts) that the characteristics of the RMBS and the underlying loans were misrepresented in the offering documents. NCUA Press Release on Barclays. NCUA Press Release on Wachovia. We previously covered two of NCUA’s actions against Wachovia here and here.
New York Appellate Court Allows Repurchase Claims Against Nomura To Proceed
On October 13, 2015, the First Department of the Appellate Division of the Supreme Court for the State of New York decided an appeal in four actions brought by HSBC Bank as Trustee on behalf of four RMBS trusts against Nomura Credit & Capital, Inc. and related entities. We previously covered Justice Friedman’s trial court decision in one of the actions here. In a decision written by Justice John W. Sweeney, the First Department held that the trusts can proceed with claims relating to loans that were not the subject of pre-suit breach notices or where Nomura was not given the contractual 90-days-notice of the alleged breaches before suit was filed. The First Department distinguished its decision in Ace (previously covered here) on the basis that in Ace there were no timely claims. The court reasoned that the untimely claims here would have related back in an amended pleading to timely claims in the complaint, and cited the trusts’ allegations that Nomura independently discovered the alleged breaches.
Affirming Justice Friedman’s decision, the court also held that the trusts are not limited by the contractual “sole remedy” of repurchase of loans breaching representations and warranties if the loans have been liquidated or foreclosed. Instead, the trusts may seek money damages for breaching loans where specific performance of the repurchase sole remedy is impossible. The court further affirmed the lower court’s decision that the trusts’ claims for breach of the implied covenant of good faith and fair dealing were duplicative of their breach of contract claims and affirmed the dismissal of the trusts’ claims for rescission or rescissory damages.
The court reversed Justice Friedman’s decision insofar as it dismissed the trusts’ claims that Nomura breached its representation that the deal documents did not contain any untrue statements. The court held that alleged breaches of that provision were not subject to the contract’s sole remedy of repurchase. The court further held that the trusts’ claims for damages for the failure to repurchase were properly dismissed, but the lower court erred in dismissing claims for damages for Nomura’s failure to give notice of breaches that it allegedly discovered. Decision.
Court Denies CIFG’s Attempt to Refile CDO Suit Against J.P. Morgan
On September 23, Justice Marcy S. Friedman of the New York Supreme Court for New York County denied CIFG’s motion to amend its complaint against J.P. Morgan in a case the Court previously dismissed in June. CIFG had originally brought suit claiming two causes of action against J.P. Morgan: 1) that J.P. Morgan had made material misrepresentations to induce CIFG to issue insurance on credit default swaps guaranteeing two collateralized debt obligations, and 2) for common-law fraud. In its June dismissal order, the Court dismissed the first cause of action but allowed CIFG to attempt to replead its fraud claim. CIFG’s proposed amended complaint included two causes of action, the first of which the Court held was identical in all material respects to the previously dismissed first cause of action. As to the proposed second cause of action for common law fraud, the Court noted that while CIFG had added additional allegations to attempt plead the action with particularly, it had failed to address whether a common law fraud claim could be maintained based on alleged misrepresentations made by non-insured Bear Stearns about the collateral underlying the CDOs. The Court granted CIFG leave to amend to attempt to cure this issue. Order.
WMC Mortgage and GE Mortgage Holding Settle RMBS Repurchase Case
On September 21, 2015, Judge Denise L. Cote of the United States District Court for the Southern District of New York endorsed Bank of New York Mellon’s (“BNYM”) September 18, 2015 letter reporting that the parties had settled a case in which BNYM sought repurchase of a number of allegedly defective loans as trustee for the GE-WMC Mortgage Securities Trust 2006-1. The terms of the settlement were not disclosed. Endorsed Letter.
In a ruling last month, Judge Cote had significantly reduced the potential damages in the case by holding that the trustee’s potential damages were limited to the repurchase price defined in the relevant agreements, which included the stated principal balance of “zero” for all liquidated loans.
$600 Million RMBS Repurchase Suit Against J.P. Morgan Dismissed
On September 18, 2015, Justice Shirley Kornreich of the Supreme Court of the State of New York dismissed a $600 million suit brought by Bank of New York Mellon, as securitization trustee (“BNYM”), against WLM Mortgage, LLC, J.P. Morgan Acquisition Corporation, and J.P. Morgan Chase Bank, N.A. BNYM brought the action as trustee for the J.P. Morgan Mortgage Acquisition Trust, Series 2006-WMC2, alleging that the defendants breached contractual representations and warranties as to 1,593 or more of the mortgage loans in the trust. The defendants sought dismissal on the ground that BNYM’s put-back claims were time barred under the New York Court of Appeals’ decision in ACE v. DB Structured Products. Justice Kornreich held that under ACE, BNYM’s claims were untimely because BNYM did not bring them within six years of the closing date of the transaction. The court further held that the trustee did not have a separate claim for the defendants’ alleged failure to notify the trustee of breaches of representations and warranties. Decision & Order.
Claims Dismissed From RMBS Class Action Against Citibank
On September 8, 2015, the Southern District of New York dismissed, for lack of jurisdiction, a large portion of claims from a derivative class action alleging that Citibank NA, as trustee of 27 trusts, had breached its contractual, statutory, and common law duties in connection with $17 billion of pooled loans. Plaintiffs invoked federal jurisdiction based on the Trust Indenture Act of 1939 (“TIA”) and asked the court to take supplemental jurisdiction over the accompanying state law claims. Plaintiffs asserted TIA claims in connection with just 3 of the 27 trusts. The court held that those claims could proceed, denying Citibank’s argument that the TIA does not provide a private right of action. However, the court declined to exercise supplemental jurisdiction over state law claims relating to the other 24 trusts. The court concluded that supplemental jurisdiction was permissible, but that it should nonetheless decline such jurisdictions because the claims as to each trust—which must be litigated loan-by-loan and trust-by-trust—were not sufficiently related. Order.