Posts by: Kyle Howard

Merrill Lynch Settles SEC RMBS Fraud Claims for $16M

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On June 12, 2018, the United States Securities and Exchange Commission (“SEC“) issued an Order instituting administrative proceedings, making findings, and imposing remedial sanctions against Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch“), a subsidiary of Bank of America Corporation, pursuant to Section 15(b) of the Securities Exchange Act of 1934. The SEC alleged that personnel of Merrill Lynch, acting as broker-dealers engaged in secondary market trading of non-agency RMBS, made false or misleading statements to customers between June 2009 and December 2012 that led customers to accept less or pay more for securities than they otherwise might have accepted or paid.  Merrill Lynch agreed to settle the claims for approximately $16 million without admitting or denying the allegations. Order.

Monoline Insurer Sues Trustee Over Settlement Figure in RMBS Repurchase Action

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On June 8, 2018, monoline insurer Ambac Assurance Corporation (“Ambac“) filed a complaint in the United States District Court for the Southern District of New York against U.S. Bank National Association (“U.S. Bank“), trustee of the Harborview Mortgage Loan Trust 2005-10 (the “Trust“). The complaint alleges that U.S. Bank breached certain contractual and common law duties when it agreed to a proposed $94 million settlement of an ongoing RMBS repurchase action in New York state court against Bank of America, N.A. and certain affiliates, as successors to Countrywide Home Loans, Inc. (the “Countrywide Action“). Among other things, Ambac alleges that U.S. Bank was required to observe heightened duties of care when an Event of Default occurred under the governing PSA, and that U.S. Bank breached those duties when it agreed to settle the Countrywide Action for approximately 28% of the amount that its expert opined it was entitled to recover. Ambac further alleges that U.S. Bank breached the PSA by incorrectly accounting for recoveries received by the Trust. The complaint asserts two claims for declaratory judgments, two claims for breach of contract, and one claim for breach of fiduciary duty.  Complaint.

S.D.N.Y. Denies Plaintiffs’ Request to Use Sampling in RMBS Action Against Trustee

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On February 23, 2018, Judge Lorna G. Schofield of the United States District Court for the Southern District of New York rejected Plaintiffs’ objection to U.S. Magistrate Judge Sarah Netburn’s opinion and order denying Plaintiffs’ request to re-underwrite a sample of loans in RMBS trusts in order to establish liability and damages in their suits against HSBC Bank as RMBS trustee. Judge Schofield found no clear error in Judge Netburn’s opinion, which held that sampling cannot establish either damages or liability because the contract requires Plaintiffs to prove that HSBC breached its contractual obligations as trustee on a loan-by-loan basis. The opinion held that “a sampling is just that, and by definition cannot provide loan specific information as to any loan outside the sample.” [Sampling Order]

Court Denies Dismissal of RMBS Trustee’s Claim for Failure to Notify

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On March 7, 2018, New York Supreme Court Justice Marcy S. Friedman denied a motion by Morgan Stanley ABS Capital I Inc. (“Morgan Stanley”) to dismiss a claim by RMBS Trustee Deutsche Bank National Trust Company (the “Trustee”) for failure to notify the Trustee of alleged breaches of representations and warranties regarding the mortgage loans in an RMBS trust. As a matter of first impression, Justice Friedman ruled that a claim for failure to notify does not accrue until the defendant discovers a breach of representations and warranties and fails to promptly notify the Trustee. She rejected Defendants’ argument that failure to notify claims accrue on the closing date, at the same time as the underlying claim for breach of representation and warranty. The court further held, however, that the Trustee was not harmed by any failure to notify occurring after the contractual repurchase period has ended; in other words, after six years from closing. Justice Friedman also reaffirmed that a Trustee bringing a failure to notify claim ultimately would bear the burden to prove that the failure to notify caused it some form of compensable harm.  [Order]

RBS Settles New York AG RMBS Claims for $500M

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On March 6, 2018, New York Attorney General Eric T. Schneiderman announced that the State of New York has reached a settlement with RBS Financial Products Inc. f/k/a Greenwich Capital Financial Products, Inc. (“RBS“) to resolve potential claims against RBS under New York’s Martin Act and Executive Law arising from the structuring, underwriting, issuance, and sale of 44 RMBS Trusts and related Certificates by RBS and its affiliates between 2006 and 2007. The $500M settlement includes a $100M payment to the State of New York, an additional $400M paid in the form of consumer relief, and an agreement by RBS to acknowledge certain facts relating to its alleged misconduct between 2006 and 2007. Press Release. Settlement Agreement.

Court Partially Grants Motion to Dismiss in RMBS Certificateholder Suit

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On March 2, 2018, Judge Louis L. Stanton of the United States District Court for the Southern District of New York granted in part and denied in part a motion by RMBS issuers and underwriters to dismiss five new claims asserted in a second amended complaint filed by the Federal Deposit Insurance Corporation (“FDIC“) as receiver for Colonial Bank. As previously covered, the FDIC’s initial and first amended complaints asserted claims for violations of Sections 11 and 15 of the Securities Act of 1933 (the “1933 Act“), alleging that defendants made, or controlled entities that made, untrue or misleading statements in registration statements relating to certain RMBS. The court dismissed the claims as time-barred, but the United States Court of Appeals for the Second Circuit reversed. After remand, the second amended complaint added five new claims under the Alabama Securities Act, Nevada Uniform Securities Act, and Section 12(a)(2) of the 1933 Act. Judge Stanton granted the defendants’ motion to dismiss as to the FDIC’s claims under the Nevada Uniform Securities Act and Section 12(a)(2) of the 1933 Act, on the ground that those claims were barred by applicable statutes of repose. Judge Stanton also granted the motion to dismiss as to the FDIC’s Alabama Securities Act claims against the defendant banks that served as depositors on certain RMBS certificates because FDIC did not allege that those defendants acted as sellers of the certificates, as required by law. The remainder of the claims survived defendants’ motion to dismiss. Order. Second Amended Complaint.

First Department Affirms Partial Dismissal of RMBS Repurchase Claims

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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

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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).