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Posts by: Samantha Hope Scheller

New York Appellate Court Dismisses Two Deutsche Bank RBMS Suits Under California’s Four-Year Statute Of Limitations

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On December 5, 2017, the First Department of the Appellate Division of the Supreme Court of New York unanimously overturned a New York Supreme Court holding that California’s statute of limitations did not bar Plaintiff’s claims.  Trustee Deutsche Bank National Trust Company (“DBNTC“) had brought suit against Barclays Bank PLC and HSBC (collectively, the “Defendants“).  The Defendants had moved to dismiss on the grounds that New York’s borrowing statute, CPLR 202, requires out-of-state plaintiffs to bring cases within the timeframes set forth in statutes of limitations established under both New York law and under the place “where the cause of action accrued.”  Defendants argued that the suits brought by DBNTC, whose principal place of business is California, were thus barred by California’s four-year statute of limitations for contract actions.  DBNTC argued that the New York choice-of-law clauses of the underlying contracts should determine the applicable statute of limitations.  The First Department held that “because these provisions do not expressly incorporate the New York statute of limitations, they cannot be read to encompass that [six-year] limitation period.”  Rather, “in cases where (as here) the alleged injury is purely economic,” the cause of action is deemed “to have accrued in the jurisdiction of the plaintiff’s residence.”  Decision.

SDNY Grants Defendant GreenPoint Mortgage Summary Judgment

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On March 29, 2017, Judge Andrew L. Carter, Jr., of the United States District Court for the Southern District of New York granted Defendant GreenPoint Mortgage Funding, Inc.’s (“GreenPoint“) motion for summary judgment, dismissing all causes of action against it as time-barred and terminating the case in Lehman XS Trust et al. v. GreenPoint Mortgage Funding, Inc.

Plaintiff Trustee U.S. Bank National Association, on behalf of the Lehman XS Trust, Series 2006-GP2 (“GP2“), Lehman XS Trust, Series 2006-GP3 (“GP3“), and Lehman XS Trust, Series 2006-GP4 (“GP4“) (collectively, the “Trusts“), and Freddie Mac Conservator Federal Housing Finance Agency (collectively, “Plaintiffs“) brought consolidated claims against GreenPoint regarding GP2, GP3, and GP4. Plaintiffs alleged breach of contract and indemnification claims for specific performance and damages arising out of GreenPoint’s alleged breach of certain representations and warranties.

Citing N.Y. C.P.L.R. § 214(3), the Court first found that Plaintiffs’ breach of contract claims under the mortgage loan purchase agreements (“MLPA“) for all three Trusts were time-barred under New York state’s six-year statute of limitations for breach of contract actions. The Trusts’ respective MLPAs required GreenPoint to cure or repurchase the defective loans in the event that any of the mortgage loans breached these representations and warranties. The closing dates for the Trusts were as follows: GP2 on May 15, 2006; GP3 on June 15, 2006; and GP4 on July 17, 2006. FHFA filed summons with notice for GP2 on May 30, 2012; for GP3 on June 29, 2012; and for GP4 on July 30, 2012.

Judge Carter then rejected Plaintiffs’ indemnification claims arising out of GreenPoint’s alleged breaches of representations and warranties. Plaintiffs sought indemnification for its losses, costs, fees, and expenses arising out of and related to the breaches of GreenPoint’s representations and warranties. Since Plaintiffs did not face liability to a third party as a result of the alleged breaches, the Court held that Plaintiffs’ indemnification cause of action was “more appropriately characterized as one to recover losses incurred by breach of contract” and therefore also barred by the statute of limitations.

Finally, the Court dismissed as time-barred Plaintiffs’ newly alleged causes of action for breach of GreenPoint’s representations and warranties made in the Trusts’ Indemnification Agreements, which provide for indemnity to the Trusts and other entities for claims arising out of breaches of the representations and warranties made in the information provided by or on behalf of GreenPoint for inclusion in the Prospectus Supplements. Opinion.

Moody’s to Pay $864 Million to U.S. Department of Justice & 21 States in Credit Rating Settlement

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On January 13, 2017, Moody’s Corporation agreed to pay $864 million in a settlement with the U.S. Department of Justice and 21 states in connection with the ratings agency’s credit rating work on residential mortgage‑backed securities and other products during the years leading up to the financial crisis. The settlement is comprised of a $437.5 million payment to the Department of Justice and $426.3 million to 21 states. The Statement of Facts accompanying the Settlement Agreement states that from 2004‑2010, Moody’s issued credit ratings of RMBS and CDOs, but that there were potential conflicts of interest in Moody’s “issuer‑fee‑based” business model, in which issuers paid Moody’s for their credit opinions. The settlement agreement does not constitute sanctions “for any act or practice of Moody’s.” In accordance with the settlement agreement, Moody’s agrees to maintain and adopt certain compliance measures that “promote the integrity and independence of Moody’s credit ratings” for a period of five years. Settlement Agreement. Statement of Facts. Moody’s Compliance Commitments.

SDNY Court Appoints Lead Master to Review 9,300 UBS Loans for Material Breach Following UBS Putback Trial

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On September 6, 2016, following a 3-week long bench trial in May, U.S. District Judge P. Kevin Castel of the Southern District of New York held that he will appoint a Lead Master to determine whether there are “material breaches” in 9,300 loans at issue in putback litigation against UBS. In its 239-page post-trial decision, after addressing a number of issues and discussing 20 loans, the Court appointed a Lead Master to examine each loan on an individual basis and prepare recommended findings and conclusions on liability.

The Court outlined Plaintiff’s burden of proof for breach of underwriting guidelines, holding that the Plaintiff must demonstrate it is more likely than not that the loan was not originated in compliance with the relevant underwriting guidelines, unless an exception was actually exercised, in a reasonable manner, at the time of origination. Plaintiffs will then be required to prove a breach has a “material and adverse” effect at the time UBS’s repurchase obligation was triggered. The Court held this can be shown: (1) by proving an increased risk of loss to certificateholders; (2) with evidence that a breach resulted in altered loan terms; or (3) through a showing of layered risk and/or the cumulative effect of multiple breaches. The Court held that discovery of a breach cannot be based on constructive knowledge. Instead, Plaintiffs must show actual knowledge, which may be established by circumstantial evidence, or willful blindness. Memorandum and Court Order.

Court Denies Summary Judgment on Issues of Timeliness in NCUA RMBS Suit

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On September 1, 2016, Judge John W. Lungstrum of the U.S. District of Kansas denied cross-motions for summary judgment on the issue of timeliness brought by RBS, Nomura and the NCUA in NCUA v. RBS Securities, et al. NCUA alleges in its 2011 complaint that it suffered losses of $800 million on 2006-2007 vintage RMBS certificates based on misstatements by the defendants. Defendants RBS and Nomura argued on summary judgment that NCUA’s claims must be dismissed because they were not brought within one year after discovering the allegedly untrue statement or omission, or after such discovery should have been reasonably made. NCUA argued in opposition that it did not have constructive notice of the facts underlying its claims by the relevant dates and that its claims were timely. The Court found that “a jury could reasonably find in favor” of either party as to what a “reasonably diligent investor would have known and done in 2007 and 2008 on the timeliness issue” and that as a result fact questions remained precluding summary judgment for either side. Memorandum and Court Order.

FDIC Settles RMBS Litigation for $190 Million with U.S. Financial Institutions

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On May 26, 2016, the FDIC reached a $190 million settlement of RMBS claims against eight financial institutions, including Barclays Capital Inc.; Deutsche Bank Securities Inc.; Goldman, Sachs & Co; RBS Securities Inc.; and UBS Securities LLC. The settlement resolves six separate suits brought in 2011 and 2012 in California and Alabama alleging misrepresentations within the defendant underwriters’ RMBS offering documents.  The FDIC, as a receiver, will distribute the settlement funds among five failed bank receiverships.  FDIC Settlement Agreement.

Goldman Sachs Set to Pay $5.1 Billion in RMBS Settlement

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On April 11, Goldman Sachs agreed to pay roughly $5.1 billion in a settlement with federal and state officials regarding the marketing and sale of RMBS during the years leading up to the financial crisis.  The settlement is divided into a $2.4 billion civil penalty, $1.8 billion for consumer relief and $875 million in cash.  Cash payments will primarily be divided among the National Credit Union Administration, the Federal Home Loan Banks and the States of California, Illinois and New York. Goldman Settlement.

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.