On August 28, Justice Marcy S. Friedman of the Supreme Court of the State of New York granted in part and denied in part DB Structured Products, Inc.’s motion to dismiss repurchase claims brought by HSBC, as Trustee for the Ace Securities Corp. Home Equity Loan Trust, Series 2007-ASAP2. Relying on her prior decision in Nomura Asset Acceptance Corp. Alternative Loan Trust v. Nomura Credit & Capital, Inc., Justice Friedman held that the relief available to plaintiff is limited by the sole remedy provision of the parties’ contracts and therefore dismissed plaintiff’s claim for rescission. She also dismissed as duplicative plaintiff’s claim for breach of implied covenant of good faith and fair dealing and rejected plaintiff’s claim for indemnification of attorney’s fees. However, Justice Friedman declined to dismiss the complaint because of the plaintiff’s failure to serve a timely repurchase demand prior to filing suit, holding the plaintiff sufficiently alleged that DBSP had independently discovered breaches within the six-year limitations period to survive a motion to dismiss. Order.
DB Structured Products
ACE Files Complaint Re-Asserting Repurchase Claims Dismissed by the First Department
On June 18, trustee HSBC filed suit on behalf of ACE Securities Corp. Home Equity Loan Trust Series 2006-SL2 against DB Structured Products, Inc., a Deutsche Bank Subsidiary, in New York state court. The complaint attempts to revive claims previously dismissed by New York’s First Department intermediate appellate court. In its December 2013 decision, the First Department held that the Trustee’s claims were untimely and that the certificate holder-plaintiffs who initially had brought the claims lacked standing to sue. Plaintiff asserts that the new complaint is properly brought under a procedure that permits refiling a suit within six months after dismissal on certain grounds, alleging that it has cured the deficiencies previously identified by the First Department. In the new action, the plaintiff again alleges that DB Structured Products breached contractual representations and warranties related to mortgage loans underlying the securitization at issue. Complaint.
Repurchase Suits to Proceed Against DB Structured Products
On March 20, Judge Alison J. Nathan of the United States District Court for the Southern District of New York granted in part and denied in part DB Structured Products, Inc.’s, (DBSP) motions to dismiss four lawsuits brought by HSBC Bank as trustee of four different residential mortgage securitization trusts. The court dismissed the trustee’s claims for a declaration that DBSP is required to reimburse the trustee for expenses incurred in enforcing its remedies under the relevant contracts, including costs and attorney’s fees, on the basis that the trustee could seek such reimbursement without the need for declaratory relief. The court denied DBSP’s motion to dismiss the trustee’s breach of contract claims for failure to comply with the contractual requirements for a demand to repurchase allegedly breaching loans, holding that DBSP’s discovery of breaches of representations and warranties was adequately pleaded and provided a sufficient basis for the claims to proceed without evaluating the sufficiency of such demand. The court also allowed claims for damages to proceed. Order.
New York Appellate Court Orders Dismissal of Repurchase Claims Against DB Structured Products as Time-Barred
On December 19, the Appellate Division, First Department of the New York Supreme Court held that repurchase claims brought by an RMBS trust against DB Structured Products were barred by the statute of limitations, reversing the trial court’s denial of DB’s motion to dismiss. The court rejected plaintiff-appellee’s argument that the statute of limitations for breach of representations and warranties begins to run when the bank fails to cure or repurchase a defective loan. Instead, the claims accrued when the representations and warranties first were breached. Plaintiff-appellee’s complaint did not relate back to an earlier summons with notice filed by the trust’s certificate holders, for two reasons. First, the court held that the summons with notice filed was a nullity because the certificate holders failed to comply with the contractual repurchase protocol by not waiting for the expiration of the requisite 60- and 90-day periods for cure or repurchase before attempting to commence the action. Second, the court held that the certificate holders did not have standing to sue, and that the subsequent complaint filed by plaintiff-appellee could not relate back to a summons with notice filed by a party without standing. Decision.
New York State Court Dismisses Rescission Claim in RMBS Putback Case
On November 21, Justice Shirley Werner Kornreich of the Supreme Court of the State of New York granted in part defendant DB Structured Products, Inc.’s (DB) motion to dismiss the complaint of ACE Securities Trust 2007-HE1. The court held that the trust could not obtain rescission of the entire transaction, or “complete refund” damages as to loans that did not breach the bank’s representations and warranties. The court denied the motion to dismiss, however, to the extent that DB sought an order precluding the trust from maintaining putback claims as to loans that were not identified in the trust’s demand letters. Decision.
Deutsche Bank Settles Nevada AG’s RMBS Probe for $11.5 Million
On October 17, the Nevada Attorney General filed court documents disclosing a $11.5 million settlement with DB Structured Products, Inc., a unit of Deutsche Bank AG. The Nevada AG had investigated DB Structured Products’ practices related to the packaging and sale of subprime and adjustable rate mortgages in RMBS. According to the Nevada AG, the settlement proceeds will go to Nevada homeowners. Assurance of Discontinuance.
New York State Court Allows Trustee Lawsuit Against DB Structured Products to Proceed
On May 13, Justice Kornreich of the Supreme Court of the State of New York denied DB Structured Products, Inc.’s (DBSP) motion to dismiss an RMBS putback action brought against it by the trustee for the relevant RMBS trust. The plaintiff alleged that DBSP breached representations and warranties concerning the mortgage loans backing the trust and then failed to fulfill its contractual obligation to repurchase those loans. Justice Kornreich held that plaintiff’s claims were timely because each alleged failure by DBSP to comply with its recurring repurchase obligation constituted an independent contractual breach that re-started the statute of limitations. Order.
Trustee Sues Deutsche Bank Over $89 Million in RMBS Securities
On January 28, HSBC Bank USA, acting in its capacity as Trustee for a single home equity loan trust, filed a complaint in the Supreme Court for the State of New York against DB Structured Products Inc., an affiliate of Deutsche Bank AG. The Trustee alleges that Deutsche Bank breached representations and warranties regarding originator underwriting standards applied to the loans underlying the RMBS, no misrepresentation or fraud in the origination of the loans, and no material defects in the loans. The Trustee asserts causes of action for breach of contract/specific performance, fundamental breach, and declaratory judgment for reimbursable expenses, and seeks rescissory or compensatory damages of $89 million. Complaint.
Trustee Brings $640 Million RMBS Suit Against Deutsche Bank
On November 27, HSBC Bank, acting as trustee for a Real Estate Mortgage Investment Conduit Trust, filed suit against DB Structured Products, Inc., a Deutsche Bank affiliate, in the federal district court for the Southern District of New York. The complaint alleges that DB Structured Products breached its contractual duties by failing to properly review the mortgage loans underlying an RMBS securitization and by failing to buy back allegedly defective loans. HSBC, which alleges that over 90 percent of the underlying mortgage loans did not comply with underwriting guidelines, seeks rescissory damages or alternatively compensatory damages, and failing the award of damages, specific performance requiring the repurchase of allegedly defected loans. Complaint.
Deutsche Bank Affiliate Sued for Breach of MBS Warranties
On May 29, 2012, the Federal Housing Finance Agency (“FHFA”), acting as conservator for Freddie Mac, filed a summons with notice in New York state court against DB Structured Products. The FHFA purports to sue derivatively on behalf of the Trustee of a particular RMBS trust that issued certificates purchased by Freddie Mac. The FHFA alleges that DBSP breached its contractual representations and warranties concerning the underlying mortgage loan originators’ compliance with underwriting guidelines, the absence of errors or fraud in the origination process, the loans’ compliance with federal, state, and local laws, the accuracy of loan-level data provided to rating agencies, and other loan-related characteristics. The FHFA seeks specific performance of DBSP’s repurchase obligations under the relevant contracts. Summons.