Paul F. Rugani

Partner

Orange County

prugani@orrick.com

Read full biography at www.orrick.com

Financial institutions, accounting firms, and public companies turn to Paul Rugani to advise them in connection with their most significant exposures. Paul has helped his clients achieve victories through motion practice, at trial, and on appeal. And his advocacy for clients before government regulators has successfully minimized or avoided potential enforcement action.

Legal 500 touts Paul as a recommended attorney for Securities Litigation, observing that he is “among the most creative and strategic lawyers” who always has “an eye on the end game.”  Paul achieved American Lawyer Litigator of the Week recognition as part of a team that achieved a ground-breaking New York Court of Appeals victory that substantially reduced financial exposure in RMBS repurchase litigation.

Leader of Orrick's Securities Litigation practice and deputy leader of the Firm's Financial Services Litigation practice, Paul has extensive experience representing clients in securities class actions, shareholder derivative lawsuits, commercial contractual disputes and other complex litigation matters at both the trial and appellate levels, as well as in connection with internal, government and regulatory investigations. Paul also counsels domestic and foreign accounting firms on matters related to state CPA licensing and state board regulation.

Posts by: Paul Rugani

Third Circuit Finds Trustee Not Liable for $168 Million RMBS Loss – IKB Failed to Show Trustee Violated Contractual Obligations

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The Third Circuit Court of Appeals affirmed a trial’s court’s dismissal of IKB International SA’s claims against Wilmington Trust Co., holding that IKB had not demonstrated that Wilmington violated its contractual obligations. IKB’s breach of contract claim against Wilmington stemmed from a $168 million investment in RMBS issued by various trusts for which Wilmington served as trustee. Plaintiff’s suit against Wilmington sought money damages for breaches of contract and Wilmington’s implied “overarching duty to protect the trusts.” In affirming the dismissal, the Third Circuit held that Wilmington’s role was “primarily ministerial,” that it had only agreed to perform certain “modest functions” specifically enumerated in the Trust Agreements and that the agreements in fact shielded Wilmington from the liability asserted.

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.

New York Supreme Court Dismisses ACE Action Re-Asserting Repurchase Claims against DB Structured Products

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On March 29, 2016, Justice Marcy Friedman of the New York Supreme Court rejected the trustee’s attempt to renew previously dismissed claims in ACE Securities v. DB Structured Products, Inc.  As we previously reported, the trustee re-filed this action after the First Department dismissed the prior lawsuit related to the same trust, a dismissal that the Court of Appeals later affirmed.

In granting the motion to dismiss, the court rejected the trustee’s reliance on CPLR 205(a) as grounds for reviving the previously dismissed lawsuit.  The Court held that CPLR 205(a) allows only the same plaintiff that commenced the prior action to re-commence a second action under the terms of that rule.  Because the prior action had been commenced by the certificateholders, not the trustee, the trustee was not the same plaintiff and could not take advantage of CPLR 205(a).  The Court rejected the trustee’s argument that it and the certificateholders were attempting to litigate identical interests, holding that the certificateholders in the prior action did not possess a cause of action to which the trustee succeeded.  The court also considered the defendant’s alternative argument that CPLR 205(a) was not available because the prior lawsuit was untimely.  The prior lawsuit was filed on the six-year anniversary of the allegedly breached representations and warranties, but neither the trustee nor the certificateholders had complied with the contract’s notice and cure “repurchase protocol” at the time of filing, a failing that both the First Department and Court of Appeals relied upon in dismissing the prior case.  The Court held that to the extent the dismissal was based on the non-compliance with the repurchase protocol, it should properly be characterized as a dismissal for failure to comply with a condition precedent, not a dismissal on timeliness grounds.  However, the First Department also held that the trustee’s complaint in the prior lawsuit had been untimely because it did not relate back to the certificateholders’ summons with notice.  Therefore, the trustee’s failure to file a timely complaint in the first lawsuit provided a second basis for why the trustee could not rely on CPLR 205(a) to re-file the previously dismissed lawsuit. Order.

National Credit Union Administration Board Accepts UBS Securities LLC Offer of Judgment

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On February 25, the National Credit Union Administration Board (“NCUA”) accepted an offer of judgment tendered by UBS Securities LLC (“UBS”) in the amount of $33,014,285 plus prejudgment interest, which will be calculated by the court. NCUA and UBS will attempt to agree on costs and fees also to be paid by UBS.  Acting as the liquidating agent for Southwest Corporate Federal Credit Union and Members United Corporate Federal Credit Union, NCUA’s complaint alleged that UBS made material misstatements in connection with the sale of 20 RMBS certificates, alleging more than $918 million in actual gross losses.  UBS specified in the offer of judgment that its offer should not be construed as an admission of liability. Offer of Judgment. Complaint.

FDIC Sues BNY Mellon For Alleged Failure As Trustee of RMBS

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On August 19, 2015, the Federal Deposit Insurance Corp., acting as receiver for Guaranty Bank, filed suit against Bank of New York Mellon Corp. in New York federal court, alleging that BNY breached its duties as trustee of 12 RMBS trusts that issued approximately $2 billion in certificates.  The trusts were sponsored by Countrywide Home Loans and EMC Mortgage Corp.  The FDIC alleges that BNY breached its contractual obligations by failing to provide notice of representation and warranty violations and demand Countrywide and EMC to replace or buy back the noncompliant loans, provided false regulatory certifications and remittance reports, and failed to take possession of complete mortgage files.  The FDIC asserts claims for breach of contract, the federal Trust Indenture Act, and the New York Streit Act.  Complaint.

Union Pension Fund Requests Approval of Settlement With Goldman Sachs in RMBS Litigation

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On August 13, 2015, union pension fund NECA-IBEW Health & Welfare (“NECA”) and the Police and Fire Retirement Systems of the City of Detroit (“PFRS”), acting on behalf of proposed classes of institutional and individual investors, requested preliminary approval for a $272 million settlement with Goldman Sachs Group Inc.  The proposed settlement would conclude lawsuits in which NECA and PFRS alleged that Goldman Sachs had made numerous misstatements about the loans underlying $6 billion in RMBS offerings.  Stipulation and Agreement of Settlement.  Memorandum ISO Preliminary Approval.

New York Appellate Court Upholds ACA’s Fraud Suit Against Goldman Sachs

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On August 18, 2015, the New York Appellate Division’s First Department held that ACA Financial Guaranty Corp. adequately pled its fraud suit against Goldman Sachs Group Inc.  A four-judge panel held that ACA sufficiently alleged that Goldman Sachs’ allegedly false statements about hedge fund Paulson & Co.’s short position on the Abacus collateralized debt obligation transaction were material, that the statements were made with the requisite intent, and that ACA would not have provided the financial guaranty for the deal had it known the truth.  The case had been remanded from the New York Court of Appeals, which had overturned the First Department’s prior decision to grant Goldman Sachs’ motion to dismiss.  Order.

Goldman Sachs’s Motion to Dismiss Mostly Denied in $73M RMBS Suit

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On June 29, 2015, Justice Eileen Bransten of New York Supreme Court granted Goldman Sachs Group Inc.’s (“Goldman”) motion to dismiss a cause of action for negligent misrepresentation but denied Goldman’s motion to dismiss causes of action for fraud.  IKB Deutche Industriebank AG (“IKB”) had sued Goldman over losses that IKB suffered after it purchased $73.2 million in RMBS.  IKB filed the suit in September 2012, alleging that Goldman fraudulently induced IKB to purchase the RMBS by providing offering materials for the RMBS that misrepresented or omitted details about underwriting standards, loan-to-value ratios, occupancy rates of the mortgaged properties, and credit ratings.  Goldman sought dismissal on the grounds that IKB’s claims were time-barred, that IKB lacked standing to sue, and that IKB’s allegations failed to state a claim.

Justice Bransten found that it would be premature to determine whether IKB was a proper party before conducting discovery.  She rejected Goldman’s argument that IKB filed the case after the three-year German statute of limitations for fraud had run, finding that the claims accrued in Luxembourg, not Germany.  Accordingly, Justice Bransten determined that New York’s six-year statute of limitations—not Germany’s—applied and that Goldman had not argued that the claims were time-barred under that longer period. Justice Bransten dismissed IKB’s claim for negligent misrepresentation, finding that IKB’s allegations did not describe the necessary special relationship between the parties, but rather an ordinary arms-length relationship.  Finally, Justice Bransten held that IKB had sufficiently pleaded its fraud claims.  Order.

U.S. Bank Sues Countrywide for $178M in RMBS Losses

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On June 25, 2015, U.S. Bank, in its capacity as Trustee for the LXS 2007-7N Trust, filed a summons with notice in New York Supreme Court against Countrywide Home Loans (“CHL”), Countrywide Home Loans Servicing LP (“Countrywide Servicing”), and others, seeking to recover $178 million in losses over alleged breaches of representations and warranties made about the sold to the Trust.  U.S. Bank alleges that, despite receiving repurchase demands in connection with allegedly breaching loans, CHL failed to cure or repurchase the loans, or indemnify the Trust for the resultant losses.  U.S. Bank also claims that Countrywide Servicing failed to notify the Trustee when it discovered breaches, and failed to force CHL to repurchase or substitute such breaching loans.  U.S. Bank seeks specific performance, declaratory relief, damages, indemnification, and prejudgment interest.  Summons with Notice.