On July 20, 2015, Judge Scheindlin of United States District Court for the Southern District of New York denied HSBC Bank USA, NA’s (“HSBC”) motion to dismiss claims brought by the National Credit Union Administration (“NCUA”) related to the administration of mortgage-backed securities worth $2 billion. NCUA alleges that HSBC failed to perform its duties as the indentured trustee for 37 RMBS trusts. Judge Scheindlin rejected HSBC’s argument that NCUA lacked standing to bring the suit because most of the debt had been resecuritized, and held that NCUA has standing to pursue the claims against HSBC derivatively because the current trustee of the resecuritized loans tacitly consented to the action by remaining neutral. Opinion and Order.
Tom Kidera helps navigate companies through crisis. Whether handling sensitive investigations or litigating billion-dollar cases, Tom brings a creative approach and dogged dedication to his clients and their needs. As a partner in the firm's Complex Litigation and Dispute Resolution group, Tom represents auditing firms, financial institutions, and the Firm's infrastructure clients in complex commercial litigation and regulatory enforcement proceedings.
He is particularly knowledgeable about issues of force majeure and catastrophic market disruption, having served on a team of Orrick lawyers whose force majeure-related victory on behalf of long-time client, Hemlock Semiconductor LLC, was declared a Top 10 Business Case of 2010-2019 by the Michigan Bar Journal.
Tom represents audit firms and accountants in regulatory proceedings commenced by the SEC and the PCAOB as well as civil litigations. He has experience managing and conducting large scale internal investigations, liaising with regulators, remediating problems, and managing risk and liability in delicate circumstances.
Tom also has litigated structured finance issues for his entire career, representing securitization sponsors and mortgage loan servicers in an array of litigations from securities fraud and loan repurchase disputes to ERISA and consumer class actions, also consulting and advising on the interpretation of securitization documents and events of default.
In addition, Tom advises the Firm's energy and infrastructure clients on litigation matters, previously having served as a member of the Orrick team representing Hemlock Semiconductor (a leading producer of solar-grade polycrystalline silicon) in commercial proceedings throughout the U.S. and around the globe.
Tom maintains an active pro bono practice representing asylum seekers and U.S. veterans seeking discharge status upgrades. Tom is also active in firm recruiting and retention efforts, serving on the hiring and summer program committees in New York, as well as the Professional Development Committee. He was a summer associate in the firm’s New York office in 2009.
Posts by: Thomas Kidera
JPMorgan Settles RMBS Class Action
On July 17, 2015, lead plaintiffs filed a stipulation and agreement settling a 2009 class action lawsuit against JPMorgan Chase & Co. (“JPMorgan”) alleging that the bank had misrepresented the quality of loans underlying $10 billion worth of mortgage-backed securities it sold. Without admitting any wrongdoing JPMorgan agreed to pay plaintiffs $388 million, subject to court approval. Stipulation and Agreement of Settlement.
Banks’ Motion to Dismiss Commerzbank RMBS Fraud Claims Granted
On June 18, 2015, Justice Marcy Friedman of the New York Supreme Court dismissed RMBS fraud claims brought by Commerzbank AG London Branch (“Commerzbank”) against UBS, Nomura Holdings Inc., Barclays Bank PLC, Citigroup and other banks on the grounds that the fraud claims at issue were barred by the statute of limitations. Ruling for the defendants, Justice Friedman held that New York’s six-year statute of limitations started running on the final purchase date, and not when the certificates started sustaining losses. She also found, in the alternative, that New York’s two-year discovery period for fraud claims was triggered when all the certificates at issue were downgraded. Commerzbank had alleged that the defendant banks had intentionally included toxic loans in securitizations.
MassMutual Motion for Partial Summary Judgment Denied As to 9 of 10 Securitizations
On June 22, 2015, United States District Judge Mark G. Mastroianni of the District of Massachusetts largely denied Massachusetts Mutual Life Insurance Company’s (“MassMutual”) motion for partial summary judgment seeking to preclude Deutsche Bank Securities Inc. (“DBSI”) from asserting a due diligence defense with respect to nine of ten RMBS at issue, rejecting the argument that the due diligence performed was facially inadequate. Judge Mastroianni granted the motion as to the tenth securitization, based on his finding that there was no evidence that acquisition diligence was conducted on over 80% of the underlying loan pools.
New York’s Highest Court Affirms Dismissal of RMBS Suit Against DB Structured Products as Time-Barred
On June 11, 2015, the New York Court of Appeals issued its decision in the closely-followed case of ACE Securities Corp., Home Equity Loan Trust, Series 2006-SL2 v. DB Structured Products, Inc. New York’s highest court affirmed the First Department’s dismissal of an action brought by HSBC, as Trustee of the Home Equity Loan Trust, Series 2006-SL2 (“Trust”), against DB Structured Products (“DBSP”) on timeliness grounds, concluding that a cause of action for breach of the representations and warranties accrues on the closing date of the transaction. The Court held that New York’s six-year statute of limitations for such breach of contract claims runs from the date the representations and warranties are made. While the trial court reasoned that DBSP’s cure or repurchase obligation under the Pooling and Servicing Agreement (“PSA”) was ongoing, the Court of Appeals explained that DBSP represented and warranted certain facts about the mortgage loans as they existed when the PSA and Mortgage Loan Purchase Agreement were executed and expressly stated they did not survive the closing date. The Court noted that it makes sense that DBSP “[did] not guarantee payment for the life of the transaction because loans may default 10 or 20 years after they have been issued for reasons entirely unrelated to the Sponsor’s representations and warranties.” The court also held that a timely repurchase demand and subsequent expiration of the cure period was not a substantive condition precedent that delayed the accrual of the cause of action; instead, the Court held that it was a procedural prerequisite to suit. Order.
Court Denies Motion for Partial Summary Judgment in RMBS Repurchase Litigation
On May 22, 2015, Judge Denise Cote of the United States District Court for the Southern District of New York denied defendants WMC Mortgage, LLC and GE Mortgage Holding, L.L.C.’s motion for partial summary judgment to dismiss certain loan repurchase claims asserted by Bank of NewYork Mellon in its capacity as RMBS Trustee for GE-WMC Mortgage Securities Trust 2006-I. Defendants argued that because certain loans in the trust had been foreclosed-upon and liquidated, the terms of the operative Pooling and Service Agreement barred recovery. Judge Cote rejected this argument. Following New York State courts construing prevailing New York law, Judge Cote held that money damages could be awarded in lieu of the PSA’s “sole remedy” of loan repurchase for a breaching loan where the granting of equitable relief appears to be impossible or impracticable. The court held that the liquidation of a breaching loan presents such a circumstance, and permitted Bank of New York Mellon’s claims as to foreclosed-upon loans to go forward. Order.
JP Morgan and Others Voluntarily Dismissed from FHLB Boston’s RMBS Suit
On May 8, 2015, the Federal Home Loan Bank of Boston filed a stipulation of voluntary dismissal with prejudice of claims it levied against JP Morgan Chase & Co., the Bear Stearns Companies Inc., EMC Mortgage Corporation and other entities. FHLB Boston had filed suits seeking rescission and other damages under Massachusetts law, alleging that the defendant banks made material misstatements and omissions about the riskiness of the mortgage pools underlying the securities. There was no mention in the stipulation of whether a settlement had been reached. Stipulation.
Nomura Found Liable in RMBS Trial
On May 11, 2015, Judge Denise Cote of the United States District Court for the Southern District of New York found Nomura Holdings Inc. liable for inaccurately characterizing the mortgage loan collateral backing seven RMBS certificates it sold to Fannie Mae and Freddie Mac between 2005 and 2007. The suit against Nomura is the last that remains of sixteen lawsuits originally filed against by FHFA against RMBS issuers and sellers alleging violations of Sections 12(a)(2) and 15 of the 1933 Securities Act and state securities laws. Judge Cote’s decision followed a nearly 4-week bench trial that concluded on April 9, 2015.
In a 361-page decision, Judge Cote found, among other things, that 45% to 59% of the sample loans were materially defective insofar as they deviated from relevant underwriting guidelines, and that 27% of the sample loans were subject to inflated appraisals. Judge Cote treated this as strong circumstantial evidence that the appraisers did not believe in the credibility of their appraisals at the time that they were made. Additionally, Judge Cote found that inadequacies in credit ratings of the offered certificates were due to inaccurate loan tapes Nomura provided to the rating agencies. Finally, Judge Cote found that Nomura’s due diligence practices were insufficient, and rejected Nomura’s argument that market conditions, and not the misrepresentations, caused the losses alleged. Judge Cote did not specify the amount of damages and asked the parties to submit a proposed judgment by May 15, 2015. Opinion and Order.
New York Court of Appeals Hears Arguments on RMBS Put-Back Claim Statute of Limitations
On April 30, 2015, New York’s highest court heard arguments in ACE Securities Corp. v. DB Structured Products Inc. regarding the accrual date for RMBS put-back claims – i.e., the date on which the statute of limitations begins to run. Plaintiff ACE appealed an intermediate appellate court’s ruling that claims for breaches of representations and warranties are time-barred unless brought within six years of the transaction’s closing date. ACE argued that the claim does not accrue, and the statute of limitations does not begin to run, until a demand for cure or repurchase has been made and rejected, contending that investors may not know of the alleged representation and warranty breaches within six years of closing. The defendant argued that if the Court adopted plaintiff’s approach and ruled that a put-back claim does not accrue until demand is made, plaintiffs would be able to tactically take a “wait and see” attitude. Depending on how the deal performs, they potentially could wait for decades after a transaction was entered into before making a repurchase demand, and only then bring suit if the demand is rejected.
Second Circuit Affirms Dismissal of Class Action Alleging That RBS Mislead Investors About RMBS Exposure
On April 15, 2015, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of a putative investor class action against the Royal Bank of Scotland (RBS). The plaintiffs had brought claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, alleging that RBS induced them into buying American Depository Shares (ADSs) of RBS between October 2007 and January 2009 by misrepresenting the scope of RBS’s investment exposure to subprime mortgage-backed securities at that time.
The Second Circuit affirmed the District Court’s dismissal on all grounds, holding that certain of the alleged misstatements could not serve as the basis for the investors’ claims because they were made in August 2007, before the class period began, and that other alleged misstatements, concerning RBS’s acquisition of Dutch Bank ABR AMRO, likewise could not sustain a claim because they constituted inactionable puffery. Opinion.