On February 23, 2018, Judge Lorna G. Schofield of the United States District Court for the Southern District of New York rejected Plaintiffs’ objection to U.S. Magistrate Judge Sarah Netburn’s opinion and order denying Plaintiffs’ request to re-underwrite a sample of loans in RMBS trusts in order to establish liability and damages in their suits against HSBC Bank as RMBS trustee. Judge Schofield found no clear error in Judge Netburn’s opinion, which held that sampling cannot establish either damages or liability because the contract requires Plaintiffs to prove that HSBC breached its contractual obligations as trustee on a loan-by-loan basis. The opinion held that “a sampling is just that, and by definition cannot provide loan specific information as to any loan outside the sample.” [Sampling Order]

On March 7, 2018, New York Supreme Court Justice Marcy S. Friedman denied a motion by Morgan Stanley ABS Capital I Inc. (“Morgan Stanley”) to dismiss a claim by RMBS Trustee Deutsche Bank National Trust Company (the “Trustee”) for failure to notify the Trustee of alleged breaches of representations and warranties regarding the mortgage loans in an RMBS trust. As a matter of first impression, Justice Friedman ruled that a claim for failure to notify does not accrue until the defendant discovers a breach of representations and warranties and fails to promptly notify the Trustee. She rejected Defendants’ argument that failure to notify claims accrue on the closing date, at the same time as the underlying claim for breach of representation and warranty. The court further held, however, that the Trustee was not harmed by any failure to notify occurring after the contractual repurchase period has ended; in other words, after six years from closing. Justice Friedman also reaffirmed that a Trustee bringing a failure to notify claim ultimately would bear the burden to prove that the failure to notify caused it some form of compensable harm.  [Order]

On March 6, 2018, New York Attorney General Eric T. Schneiderman announced that the State of New York has reached a settlement with RBS Financial Products Inc. f/k/a Greenwich Capital Financial Products, Inc. (“RBS“) to resolve potential claims against RBS under New York’s Martin Act and Executive Law arising from the structuring, underwriting, issuance, and sale of 44 RMBS Trusts and related Certificates by RBS and its affiliates between 2006 and 2007. The $500M settlement includes a $100M payment to the State of New York, an additional $400M paid in the form of consumer relief, and an agreement by RBS to acknowledge certain facts relating to its alleged misconduct between 2006 and 2007. Press Release. Settlement Agreement.

On March 2, 2018, Judge Louis L. Stanton of the United States District Court for the Southern District of New York granted in part and denied in part a motion by RMBS issuers and underwriters to dismiss five new claims asserted in a second amended complaint filed by the Federal Deposit Insurance Corporation (“FDIC“) as receiver for Colonial Bank. As previously covered, the FDIC’s initial and first amended complaints asserted claims for violations of Sections 11 and 15 of the Securities Act of 1933 (the “1933 Act“), alleging that defendants made, or controlled entities that made, untrue or misleading statements in registration statements relating to certain RMBS. The court dismissed the claims as time-barred, but the United States Court of Appeals for the Second Circuit reversed. After remand, the second amended complaint added five new claims under the Alabama Securities Act, Nevada Uniform Securities Act, and Section 12(a)(2) of the 1933 Act. Judge Stanton granted the defendants’ motion to dismiss as to the FDIC’s claims under the Nevada Uniform Securities Act and Section 12(a)(2) of the 1933 Act, on the ground that those claims were barred by applicable statutes of repose. Judge Stanton also granted the motion to dismiss as to the FDIC’s Alabama Securities Act claims against the defendant banks that served as depositors on certain RMBS certificates because FDIC did not allege that those defendants acted as sellers of the certificates, as required by law. The remainder of the claims survived defendants’ motion to dismiss. Order. Second Amended Complaint.

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.

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.

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.