Delaware Chancery Court

Delaware Chancery Court Revives Repurchase Litigation

On January 12, 2015, Vice Chancellor Laster of the Delaware Chancery Court granted the plaintiff’s motion for reargument and revived the breach of contract claims that the court had previously held to be untimely in Bear Stearns Mortgage Funding Trust 2006-SL1 v. EMC Mortgage Corp. and JPMorgan Chase Bank, N.A.. First, the court concluded that a controlling Delaware Supreme Court decision the parties had not previously identified required application of New York’s six year statute of limitations, rather than Delaware’s three-year limitation period. The lawsuit was commenced within six years of the alleged breach, rendering it timely under New York law. Second, the court alternatively reasoned (in dicta) that even assuming Delaware law applied, the action would be timely due to the contract’s accrual provision, which stated that the repurchase claims would not accrue until the plaintiff’s demands were refused. This constituted a “condition precedent” to the action that tolled accrual under Delaware law, a position New York courts have to date rejected. The Court further concluded that the accrual provision validly extended the statute of limitations as permitted by a recent Delaware statute, which permits parties to extend the period up to 20 years (under New York law, parties are not permitted to extend the limitations period by agreement).  Order.

Bear Stearns RMBS Trustee Sues EMC Mortgage to Enforce Repurchase Obligations

On September 13, 2011, Wells Fargo, acting as Trustee for the Bear Stearns Mortgage Funding Trust 2007-AR2, sued EMC Mortgage in Delaware Chancery Court. In its breach of contract claim, Wells Fargo alleges that EMC Mortgage breached the parties’ Pooling and Servicing Agreement and Mortgage Loan Purchase Agreement by refusing to repurchase hundreds of loans it sold to the Trust that did not meet stated minimum quality standards. According to Wells Fargo, EMC Mortgage has twice refused to fulfill its repurchase obligations to the Trust after receiving written notice regarding nonconforming loan. Complaint.

U.S. Bancorp Sued Over Management of Securities Lending Trust

On March 15, 2011, Woodmen of the World Life Insurance Society, a participant in a securities lending trust formed by U.S. Bancorp, filed a complaint against U.S. Bancorp, and several affiliated individuals and entities, in Delaware Chancery Court. Defendants allegedly were responsible for the investment and oversight of the cash the trust received as collateral from persons borrowing securities placed into the trust by the plaintiff. The complaint alleges, inter alia, that the defendants wrongfully invested the cash collateral in commercial paper issued by SIVs that were backed by mortgage-backed securities, and then hid information from plaintiff about the risks of the investments they had made with the cash collateral. The complaint also alleges that, through a variety of actions, the defendants placed the financial interests of U.S. Bancorp and its affiliates over the interests of the plaintiff. The Complaint asserts claims for breach of fiduciary duty and aiding and abetting breaches of fiduciary duty and seeks money damages in an unspecified amount. Redacted Complaint.