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Posts by: Thomas Kidera

WMC Mortgage and GE Mortgage Holding Settle RMBS Repurchase Case

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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

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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

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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.

Bank of America and Midland Settle RMBS Litigation

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On September 8, 2015, Bank of America NA and Midland Loan Services settled Bank of America’s lawsuit seeking a declaratory judgment that it did not breach the representations and warranties in connection with a CMBS securitization and, consequently, did not need to repurchase loans from the securitization.  As a result of the settlement, the lawsuit was dismissed with prejudice.  The terms of the settlement were not disclosed.  Dismissal Order.

Goldman Sachs Wins Summary Judgment In CDO Class Action

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On September 8, 2015, the Southern District of New York granted summary judgment in favor of Goldman Sachs Group, Inc. in a class action lawsuit concerning the sale of two collateralized debt obligations.  The court had previously dismissed plaintiffs’ fraud claims on all grounds but one—whether Goldman was aware of “singularly prohibitive risks” associated with the CDOs but failed to completely and accurately disclose those risks.  At summary judgment, it held that plaintiffs had not shown sufficient evidence to prove Goldman’s knowledge of such risks.  In particular, the court rejected plaintiffs’ reliance on inflammatory emails, which merely “show, at most, that some Goldman employees, based on the same information available to Plaintiffs, were bearish on the RMBS market.”  The court also found insufficient evidence that Goldman knew the CDOs would perform poorly and intended for them to perform poorly.  Order.

Potential Damages in RMBS Suit Against WMC Mortgage Drastically Reduced

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On August 18, 2015, Judge Denise Cote of the federal district court for the Southern District of New York addressed the appropriate measure of potential damages in an action by Bank of New York Mellon (BoNY), as RMBS trustee, against WMC Mortgage, LLC and GE Mortgage Holding, L.L.C. In that action, BoNY seeks repurchase of a number of allegedly defective loans as trustee for the GE-WMC Mortgage Securities Trust 2006-1.  Judge Cote previously held that where repurchase is unavailable, the trustee may be entitled to damages.  On defendants’ motion to exclude the testimony of the trustee’s damages expert, the court held that the trustee’s potential damages are limited to the repurchase price for liquidated loans, as defined in the relevant agreements.  One component of that measure is the stated principal balance of the loan; the agreements define the stated principal balance of liquidated loans as “zero.”  The trustee’s damages expert had not used this measure.  As a result, Judge Cote struck the report of the trustee’s damages expert.  The decision reduces potential damages on liquidated loans from $379 million (as calculated by the trustee’s expert) to $13.3 million (the maximum calculated by the defense expert).  Order.

Seventh Circuit Reverses Summary Judgment Ruling in RMBS Case

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On August 21, 2015, a three-judge panel of the United States Court of Appeals for the Seventh Circuit reversed a Wisconsin federal judge’s ruling granting summary judgment to RBS Securities Inc. (“RBS”)  dismissing all but one of CUNA Mutual Group’s (“CUNA”) claims alleging that RBS had made material misrepresentations regarding RMBS it had sold.  The Seventh Circuit held that because CUNA’s claims against RBS sound in fraud rather than contract they are not time-barred under Wisconsin law.  The court also held that a reasonable juror could find that CUNA had relied on representations in the offering documents notwithstanding that CUNA’s trader could not recall whether he had actually read the specific representations or deal documents at issue in the case.  Order.

FHFA’s $32 Billion RMBS Claims Are Not Time-Barred

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On August 21, 2015, Judge Alvin Thompson of the United States District Court for the District of Connecticut denied Royal Bank of Scotland Group PLC’s (“RBS”) motion for summary judgment as to claims brought by the Federal Housing Finance Agency (“FHFA”) alleging that RBS made misleading statements in connection with $32.1 billion in RMBS that it had sold between 2005 and 2008.  The court concluded that FHFA’s claims against RBS are not time-barred because the extender statute in the Housing and Economic Recovery Act of 2008 preempts statutes of repose as well as statutes of limitations, pointing to the statutory language, congressional intent, and recent precedent in support of its holding.  Order.

GE Mortgage Holding, LLC Motion for Summary Judgment Denied

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On July 30, 2015, District Judge Denise Cote of the Southern District of New York denied GE Mortgage Holding LLC’s (“GEMH”) motion for summary judgment in a repurchase action brought by the RMBS Trustee for the GE-WMC 2006-1 Trust.  GEMH moved for summary judgment arguing that unambiguous language in the Pooling and Service Agreement barred the Trustee from pressing loan repurchase claims against GEMH, claiming that it provided only for such claims against the originator, an affiliate of GEMH’s.  Judge Cote denied summary judgment finding that reasonable people could disagree with GEMH’s read of the agreement, pointing to other relevant contract provisions and the title of the section at issue as potentially supporting an alternate interpretation.  Opinion and Order.

Morgan Stanley and Natixis Win Dismissal of RMBS Claims

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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.