Litigation

S.D.N.Y. Denies Plaintiffs’ Sampling Motion in Consolidated Actions Against RMBS Trustee

 

On August 21, 2017, Judge Katherine Polk Failla of the United States District Court for the Southern District of New York upheld a magistrate’s order denying plaintiff-certificateholders’ motion to attempt to prove their claims by re-underwriting a sample of the loans at issue in a consolidated action against Wells Fargo Bank, National Association, in its capacity as RMBS trustee. Judge Failla, after reviewing the magistrate’s order for clear error, affirmed that under the governing agreements, to prevail on a breach of contract claim against an RMBS trustee with respect to the loans underlying the trust, Plaintiffs must demonstrate a breach on a loan-by-loan and trust-by-trust basis. Accordingly, Plaintiffs cannot utilize sampling in their efforts to prove that the RMBS trustee breached its contractual obligations. Judge Failla also noted that Plaintiffs, rather than needing to prove that the trustee had actual knowledge of breaches of representations and warranties, could potentially demonstrate the trustee’s discovery of breaches through a showing of conscious avoidance or implied actual knowledge. Wells Fargo Sampling Order.

Connecticut District Court Denies WMC Mortgage’s Motion for Partial Summary Judgment

 

On August 8, 2017, Judge Charles S. Haight Jr. of the U.S. District Court for the District of Connecticut denied defendant’s motion for partial summary judgment in Law Debenture Trust Co. of New York v. WMC Mortgage.  The court held that plaintiff may continue to pursue its failure-to-notify claim on loans other than the loans for which plaintiff had specifically notified WMC of alleged breaches.  Judge Haight also declined to prohibit Plaintiff from using statistical sampling to prove liability and damages, although he did not find that such sampling would ultimately be sufficient to prove the plaintiff’s claim, and refused to grant defendant’s motion for summary judgment on the meaning of a “material and adverse” breach. Read the summary judgment order here.

Court Enters Verdict for Bank of New York Mellon in Ohio RMBS Trustee Litigation

 

 

On August 4, 2017, Judge Steven E. Martin of the Ohio Court of Common Pleas rendered a full verdict in favor of Defendant-Trustee The Bank of New York Mellon (“BNYM“) in Western and Southern Life Insurance Company, et al. v. The Bank of New York Mellon following a three-week bench trial.

Judge Martin held that plaintiffs failed to prove that BNYM’s conduct caused losses on the RMBS at issue, instead finding that any losses on the RMBS were caused by the fallout of the financial crisis itself, or by “potentially other entities” besides BNYM.  The court also determined that plaintiffs’ methodology for establishing its alleged damages—by sampling a fraction of the loans at issue and extrapolating conclusions therefrom—was inappropriate given the applicable contracts.  Echoing recent decisions in New York State and Federal Courts, Judge Martin found that “countless” provisions in the pooling and servicing agreements require plaintiffs to prove their claims loan-by-loan, rather than through sampling. Read the opinion letter here.

Proposed Class Accuses Deutsche Bank of Improperly Using Funds for Legal Defense

 

On August 4, 2017, Royal Park Investments SA/NV filed a proposed class action against Deutsche Bank National Trust Co. (“DBNTC“) in the U.S. District Court for the Southern District of New York, claiming that DBNTC—in its capacity as RMBS Trustee for ten trusts—is improperly using trust proceeds to finance its defense against separate litigation, brought by the same Plaintiff, alleging that DBNTC breached its duties as RMBS Trustee.  Plaintiff’s complaint acknowledges that the relevant governing agreements contain language entitling DBNTC to indemnification under certain circumstances but argues that, nonetheless, New York law prohibits such indemnification where the indemnified costs are incurred in a lawsuit between the indemnifying parties.  The complaint seeks an injunction barring DBNTC from further use of the trust’s assets to fund its litigation defense and asks the court to order an accounting of legal expenses recouped to date. Read the complaint here.

Wells Fargo Wins Summary Judgment Motion on All Claims Brought by German Bank LBBW Luxemburg

 

On March 30, 2017, Judge J. Paul Oetken granted Defendants Wells Fargo Securities LLC (“Wells Fargo“), f/k/a Wachovia Capital Markets LLC (“Wachovia“), and Fortis Securities LLC’s motion for summary judgment, dismissing the remaining causes of action and closing the case in LBBW Luxemburg S.A. v. Wells Fargo Securities LLC in the United States District Court for the Southern District of New York.

In a prior motion to dismiss order in 2014, the Court granted in part Defendants’ motion to dismiss, “keeping alive” only one theory of liability brought by LBBW. That remaining theory was that Wachovia’s internal valuation markdown of the Grand Avenue II (“GAII“) CDO Preference Shares, for which Defendants had served as some of the initial purchasers, on the same day it issued those shares allegedly signaled Wachovia’s potential misrepresentation or omission to purchasers of other GAII’s securities. Plaintiffs argued this markdown supported a plausible inference that Wachovia knowingly misrepresented the value of CDO shares and constituted circumstantial evidence of conscious misbehavior.

In its ruling, the Court held that LBBW failed to show that it conveyed its right to sue to another German entity, Landesbank, when the two companies merged in 2014, and therefore failed to establish standing.

Judge Oetken also found that LBBW failed to overcome the motion for summary judgment on the merits. The Court found that LBBW’s single surviving theory of liability was unsupported by the record, as discovery in the case had not produced evidence to connect the markdown to any secretly held view by Wells Fargo that GAII’s portfolio of assets was in trouble.

The Court also rejected the fraud claims brought against Defendants, finding that LBBW failed to point to specific evidence as to a misrepresentation or material omission on Defendants’ part based on the single surviving theory. Judge Oetken also dismissed constructive fraud and negligent misrepresentation claims against Defendants, concluding again that there was a lack of evidence to support any misrepresentation, an essential element of both claims. Finally, the Court found that LBBW’s breach of contract claim, which alleged that Defendants agreed to notify it of any material changes to the CDO’s capital structure, must fail, as the “evidence establishes beyond genuine dispute that the internal markdown on the Preference Shares was not related to any change in Wachovia’s view of GAII’s underlying portfolio of assets.”

In addition to granting Defendants’ motion for summary judgment, Judge Oetken also denied LBBW’s motion to supplement the summary judgment record as untimely; LBBW’s motion to strike certain of Defendants’ arguments; and LBBW’s motion for adverse inference sanctions. Opinion.

SDNY Grants Defendant GreenPoint Mortgage Summary Judgment

 

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.

Majority of Claims Against RBS Dismissed in MBS Suit

 

On November 14, 2016, plaintiff Federal Home Loan Bank of Boston (“FHLBB“) and defendants RBS Securities Inc., RBS Acceptance, Inc., RBS Financial Products, Inc., and RBS Holdings, USA (Inc.) (together, “RBS“) filed a joint stipulation seeking the dismissal of certain securities fraud claims alleged by FHLBB in connection with the marketing and sale of 10 RMBS certificates. The stipulation of dismissal does not affect FHLBB’s claims against RBS arising from the sale of two other RMBS certificates, or FHLBB’s claims against any other defendant. FHLBB brought this litigation against RBS and dozens of other defendants in 2011, alleging violations of Massachusetts securities laws and claiming the defendants made untrue statements and omitted material facts about the quality of the loan pools underlying the securities. Further details of the dismissal are not publicly available. Stipulation.

RBS Settles RMBS Suit for $1.1 Billion

On September 27, 2016, the Royal Bank of Scotland (“RBS”) announced a $1.1 billion settlement with the National Credit Union Administration (“NCUA”) in connection with two federal securities litigations concerning RBS’s underwriting and sale of RMBS. The NCUA, as liquidating agent for Western Corporate Federal Credit Union and U.S. Central Federal Credit Union, brought these actions against RBS and other defendants, claiming that the defendants had misled the credit unions about the risks of RMBS and made various misrepresentations in the offering documents.  Further details of the settlement are not publicly available.

U.S. Bank and WMC Settle Four RMBS Lawsuits

On September 22, 2016, RMBS Trustee U.S. Bank National Association (“U.S. Bank”) and loan originator WMC Mortgage LLC (“WMC”) filed a stipulation of dismissal in four RMBS lawsuits in light of a settlement reached between the parties. The details of the settlement are not publicly available.  The settlement resolves three lawsuits initiated by U.S. Bank, alleging that WMC misrepresented the quality of loans it sold in 2006 and 2007 RMBS offerings, as well as a lawsuit brought by WMC against U.S. Bank, seeking a declaratory judgment regarding WMC’s performance under the governing agreements of an RMBS deal.  Two of U.S. Bank’s lawsuits include claims against loan originator Equifirst Corporation, but these claims are not part of the settlement. Stipulation of Dismissal.

Lehman Estate Settles Claims By RMBS Insurer and Trustee

 

On September 20, 2016, Judge Shelley Chapman of the U.S. Bankruptcy Court for the Southern District of New York approved the $37 million settlement of $1.3 billion in claims asserted against the estates of two defunct Lehman Brothers’ entities by Syncora Guarantee Inc. in its capacity as the insurer for certain certificates issued from the GMFT 2006-1 RMBS trust. After being sued by the GMFT 2006-1 Trustee for payment under the insurance policy, Syncora filed its own claim for indemnification against Lehman as sponsor of the securitization. In addition to settling Syncora’s claim, the agreement also releases Lehman from all potential claims brought by the GMFT 2006-1 Trustee, U.S. Bank NA, in exchange for Lehman’s cooperation in a separate lawsuit arising from GreenPoint Mortgage Funding Inc.’s alleged failure to repurchase defective loans. Settlement Order. Settlement Agreement Submitted For Approval.