Litigation

S.D.N.Y. Denies Plaintiffs’ Request to Use Sampling in RMBS Action Against Trustee

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]

Court Denies Dismissal of RMBS Trustee’s Claim for Failure to Notify

 

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]

RBS Settles New York AG RMBS Claims for $500M

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.

Court Partially Grants Motion to Dismiss in RMBS Certificateholder Suit

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. OrderSecond Amended Complaint.

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

 

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.

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.

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.