Appeals Court Affirms BNYM Defense Verdict in Trustee Litigation


On February 9, the Court of Appeals of Ohio issued an order affirming a 2017 bench trial defense verdict for The Bank of New Mellon (“BNYM“) in a lawsuit filed by certain RMBS investors alleging that BNYM had breached its duties as trustee under certain pooling and service agreements.

The appellate court, in a lengthy opinion, affirmed findings by the trial court that (i) the pooling and service agreements imposed only limited pre-default obligations on BNYM as Trustee; and (ii) that those duties remained limited in this case, and were never heightened by law because plaintiffs failed to prove that BNYM had actual knowledge of specific breaches of representations and warranties on any particular loans and/or had received a notice of an event of default. The Court also affirmed the trial court’s finding that under the law, plaintiffs had to prove the existence and materiality of loan breaches on a case-by-case basis, rendering loan sampling an inappropriate method to calculate damages.

Bank of New York Mellon’s Motion to Dismiss Denied in Part in Trustee RMBS Suit by Royal Park Investments

On March 2, Judge Gregory H. Woods of the United States District Court for the Southern District of New York issued an Opinion and Order denying in part and granting in part the Bank of New York Mellon’s (“BNYM”) motion to dismiss an action brought by Royal Park Investments SA/NV (“Royal Park”) claiming damages of $1.12 billion arising from failures by BNYM, in its capacity as trustee, to protect the interests of investors in certain RMBS trusts.  Judge Woods denied arguments by BNYM that Royal Park had failed to plausibly allege BNYM’s discovery and knowledge of (i) breaches of representations and warranties in securitized loans; and (ii) events of defaults committed by servicers of the relevant trusts.  Judge Woods did, however, dismiss Royal Park’s claims against the bank for breach of trust, a violation of section 315(a) of the Trust Indenture Act, and the Streit Act.  Opinion and Order.

Walnut Place Files Derivative Suit Against Bank of New York Mellon and Countrywide in Response to Recent Settlement

On August 2, 2011, several investment entities under the name Walnut Place (“Plaintiffs”) filed a derivative complaint against Countrywide Home Loans on behalf of Bank of New York Mellon (“BNYM”) in New York State Court. Plaintiffs allege that Countrywide breached representations and warranties concerning the mortgage loans underlying Countrywide RMBS that Plaintiffs purchased. According to the Complaint, upon realization of the breach, Plaintiffs demanded in May 2011 that Countrywide repurchase the loans, which Countrywide allegedly refused to do. Plaintiffs are now suing Countrywide on behalf of BNYM, the Trustee to the RMBS that Plaintiffs purchased, to enforce the rights of the Trust on behalf of themselves and other RMBS certificateholders. According to Plaintiffs, because Countrywide and BNYM have since announced a proposed settlement that would extinguish Plaintiffs’ claims against Countrywide, it is futile to expect BNYM to sue Countrywide to enforce its repurchase obligations and Plaintiffs therefore bring their suit in a derivative action. Complaint.

New York Attorney General and Other Parties Move to Intervene in the Bank of America and Bank of New York Mellon Settlement

On August 4, 2011, New York Attorney General Eric T. Schneiderman moved to intervene in the June 29, 2011 settlement between Bank of America and Bank of New York Mellon (“BNYM”), the trustee for 530 trusts created by Countrywide entities. The Attorney General argued that the settlement should not be approved because it was negotiated by BNYM and Bank of America, without input from other beneficiaries who would also be bound by the settlement. According to the Attorney General, he moved to intervene to protect the marketplace, the interests of New York investors, and the Attorney General’s own ability to pursue claims against BNYM, Countrywide, Bank of America, and affiliated entities. NYAG Motion to Intervene.

The Attorney General also attached a proposed pleading to his motion to intervene that described the proposed settlement as “unfair” and included counterclaims against BNYM for breach of fiduciary duty and violations of state anti-fraud statutes, including the Martin Act. These causes of action arise out of BNYM’s alleged failure to properly transfer loans from Countrywide to the trusts and its failure to notify certificateholders of Countrywide’s delivery of incomplete mortgage files. NYAG Proposed Pleading in Intervention.

A few days earlier, on August 2, 2011, Cranberry Park, who allegedly owns securities in 28 of the 530 trusts at issue, also moved to intervene, arguing that BNYM may not adequately represent its interests in the settlement. If the judge grants these motions to intervene, the Attorney General and Cranberry Park will become parties to the settlement proceedings before the New York Supreme Court. Cranberry Park Motion to Intervene.