BlackRock

RMBS Trustees Defeat Motion for Class Certification in California State Court

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On May 30, 2018, Judge Ronald L. Bauer of the Superior Court of the State of California, County of Orange denied investor Plaintiffs’ (led by BlackRock Balanced Capital Portfolio (FI)) Motion for Class Certification and Appointment of Class Representative and Class Counsel in an action alleging breach of contract against RMBS Trustees Deutsche Bank National Trust Company and Deutsche Bank Trust Company Americas. Ruling from the bench, Judge Bauer based his decision on the difficulties Plaintiffs would face in “presenting evidence of causation and damages” in a class action without making an individualized showing. He further noted that the analysis would be “intensely factually oriented” and would require reviewing “an enormous number of detailed transactions.” Judge Bauer also referred to the issues of standing, statute of limitations, and choice of law in the case as “impossible” to pursue in a class action. Order.

New York Court Orders BlackRock to Seek Discovery from Former Certificateholders and Produce That Information in Suit Against RMBS Trustee

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On June 3, 2016, Judge Sarah Netburn of the U.S. District Court for the Southern District of New York ordered BlackRock, an RMBS certificateholder that has sued the RMBS trustee, HSBC, to identify and serve document subpoenas on the former owners of BlackRock’s RMBS certificates. BlackRock’s lawsuit against HSBC (which we previously discussed here) asserts several causes of action arising out of HSBC’s alleged failure to fulfill its contractual, statutory, and fiduciary obligations as Trustee. HSBC argued in its motion to compel production that the requested documents from the former owners are directly relevant to proving HSBC’s affirmative defenses and showing that BlackRock lacks standing to assert the litigation rights of the prior certificateholders.  The Court agreed, holding that BlackRock cannot assert the litigation rights of the prior certificateholders without assuming the corresponding discovery obligation.  Order.

Federal Court Permits BlackRock’s Breach of Contract Claims to Proceed against BNY Mellon

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On March 28, Judge George Daniels of the U.S. District Court for the Southern District of New York granted in part and denied in part Bank of New York Mellon’s motion to dismiss an action brought by BlackRock.  BlackRock, as a holder in numerous trusts for which BNY Mellon serves as trustee, alleges that BNY Mellon failed to (i) provide notice of breaches of seller representations and warranties, (ii) enforce seller repurchase obligations, (iii) provide notice of events of default, and (iv) act prudently upon learning of events of default.  The court exercised supplemental jurisdiction over state law claims concerning 243 trusts, holding that the claims arise out of the same operative facts as those of the federal claims concerning 17 other trusts.  The court permitted BlackRock’s breach of contract claims to proceed, but dismissed fiduciary duty claims as duplicative of the contract claims.  Judge Daniels also dismissed Trust Indenture Act claims in light of the Second Circuit’s holding that the TIA does not apply to the trusts like those at issue, and dismissed negligence and conflict of interest claims for failure to adequately state a claim. Decision.

HSBC Motion to Dismiss Denied in Part in Trustee RMBS Suits by Blackrock, Royal Park Investments, and Phoenix Light

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On June 1, 2015, Judge Shira Scheindlin of the United States District Court for the Southern District of New York issued a Decision and Order granting in part and denying in part HSBC Bank USA, National Association’s (“HSBC”) motion to dismiss three related actions brought by BlackRock, Royal Park Investments SA/NV, and Phoenix Light SF Ltd., claiming $34 billion in damages.  The suits allege that HSBC breached a fiduciary duty to investors as a trustee in 283 residential mortgage backed securities trusts by failing to require lenders and bond issuers to buy back loans that breached representations and warranties. Judge Scheindlin rejected HSBC’s argument that the plaintiffs had failed to plead breaches of representations and warranties on a sufficiently granular basis and also held that plaintiffs had sufficiently alleged that the bank had specific knowledge of breaches of the representations and warranties. Judge Scheindlin dismissed claims for negligent misrepresentation and negligence as time-barred.  Judge Scheindlin gave the plaintiffs 30 days to amend their complaint to attempt to cure the deficiencies in their dismissed claim.  Order.

US Bank and Bank of America Prevail on Motions to Dismiss

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On May 18, 2015, Judge Katherine Forrest of the United States District Court for the Southern District of New York dismissed claims in two suits brought by private investors and the National Credit Union Association, respectively, against U.S. Bank and Bank of America in their capacity as trustees for RMBS trusts.  The lawsuits asserted several causes of action arising out of the trustees’ alleged failure to fulfill their contractual, statutory, and fiduciary obligations to hundreds of RMBS trusts.

In the first case, brought by a number of institutional investors led by BlackRock, Judge Forrest dismissed claims brought under the federal Trust Indenture Act as to 810 of the 843 trusts at issue because they were governed by Pooling and Servicing Agreements (“PSAs”), rather than indentures, and the TIA does not apply to PSA trusts.  She declined to exercise supplemental jurisdiction over the state law claims asserted in connection with the 810 PSA Trusts, holding that allowing 33 indenture trusts to pull in another 810 would allow “a federal tail to wag a state dog.”  For the remaining 33 indenture trusts, Judge Forrest dismissed the claims because the plaintiffs failed to make a demand on the proper party (the “Owner Trustee”) or allege any that such demand would have been futile.  Judge Forrest granted plaintiffs leave to amend as to the indenture trusts.  Order.

In the second case, brought by NCUA, Judge Forrest dismissed claims as to 74 out of the 82 Trusts at issue on standing grounds.  Judge Forrest held that the Amended Complaint failed to demonstrate that NCUA retained any right to sue when it re-securitized its certificates in the 74 trusts as part of the NCUA Guaranteed Note Program.  She rejected NCUA’s statutory standing argument, holding that 12 U.S.C. § 1787 does not authorize NCUA to sue on behalf of separate statutory trusts created to re-securitize the CCUs’ assets.  Additionally, Judge Forrest held that the PSAs did not allow third party beneficiary status to extend beyond direct certificateholders, meaning that NCUA no longer had standing once it ceased being a certificateholder following the re-securitization.  Order.

Court Approves RMBS Settlement, Rejecting Institutional Investors’ Attempts to Scuttle It

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On March 12, 2015, Judge Katherine B. Forrest of the United States District Court for the Southern District of New York approved a $69 million settlement between the plaintiffs and defendants in Policemen’s Annuity & Benefit Fund of the City of Chicago v. Bank of America and dismissed the case with prejudice.  Plaintiffs, a class of investors, had sued Bank of America and U.S. Bancorp in their capacity as trustees for 50 Washington Mutual RMBS.  Plaintiffs alleged that the trustees breached the Trusts’ Governing Agreements and the duty of food faith and fair dealing, and violated the Trust Indenture Act.  Judge Forrest’s approval of the settlement came one week after she denied certain institutional investors’ motion to intervene in the action for purposes of blocking the settlement.  The institutional investors, led by BlackRock and PIMCO, currently are asserting derivative claims against U.S. Bank, as Trustee, on behalf of 843 RMBS Trusts, and asserted that the settlement excluded them while simultaneously releasing their claims as to RMBS Trusts that overlapped between the two actions.  The Court disagreed, finding that although BlackRock and PIMCO were excused from the settlement, the settlement did not release the claims they were pursuing.  Order Approving Settlement.  Stipulation and Settlement.  Order Re Motion to Intervene.