On August 25, 2011, Judge Sweet of the Southern District of New York dismissed two causes of action brought by BNP Paribas and Deutsche Bank against Bank of America. BNP Paribas and Deutsche Bank collectively held nearly $1.7 billion in notes issued by Ocala Funding LLC. Bank of America served as Indenture Trustee, Collateral Agent, Depositary, and Custodian for Ocala Funding. Plaintiffs allege that Bank of America improperly sold the mortgage loans that served as collateral for the notes, despite assuring plaintiffs that it was holding the loans for the noteholders’ benefit. Further, according to plaintiffs, Bank of America never distributed any sales proceeds to the noteholders. Judge Sweet granted Bank of America’s motion to dismiss, noting that plaintiffs did not themselves own the loans, but rather owned only the notes. Decision.
Deutsche Bank
New York State Court Allows Third-Party Suit By Deutsche Bank Against Originator
On July 25, 2011, Justice Shirley Kornreich of the Supreme Court of the State of New York denied Greenpoint Mortgage Funding’s motion to dismiss Deutsche Bank’s complaint against it for indemnification of any damages awarded against it or other costs arising in a suit by Assured Guaranty Municipal Corp. Assured originally sued a subsidiary of Deutsche Bank for alleged breach of the insurance and indemnity policy covering $352 million in mortgage-backed securities. Assured’s complaint claimed that the mortgages contained in the RMBS were riskier than Deutsche Bank represented and that borrower fraud was rampant. Deutsche Bank, in turn, sued Greenpoint, claiming the originator was at fault for misrepresenting the quality of the mortgages. Greenpoint claimed that its agreement with Deutsche Bank prohibited the suit because it was only obligated to cover losses “resulting from” a breach of its representations and that certain conditions precedent to suit had not been met. Justice Kornreich held that the agreement was sufficient to cover Deutsche Bank’s losses, and (Deutsche Bank had provided Greenpoint sufficient notice of the alleged breach before filing suit. Decision.
Dexia SA Cites Deutsche Bank’s Internal MBS Descriptions In Suit Over $1 Billion in RMBS Purchases
On July 13, 2011, Dexia SA filed a lawsuit in New York State Supreme Court against Deutsche Bank AG and several of its affiliates in connection with its purchase of more than $1 billion in RMBS between 2005 and 2007 from the Deutsche Bank defendants. Dexia asserts state law claims for fraud, fraudulent inducement, aiding and abetting fraud and negligent misrepresentation. The complaint alleges that the defendants made false or misleading statements to prospective investors touting the quality of the RMBS, the underlying loans and the defendants’ due diligence process while, at the same time, defendants’ internal documents disparaged the RMBS and the defendants took positions in CDOs and credit default swaps that were effectively betting against the performance of similar RMBS. Dexia Complaint vs. Deutsche Bank.
Los Angeles Sues Deutsche Bank For Failing to Maintain Los Angeles Properties
On May 4, 2011, the Los Angeles City Attorney’s Office filed a civil enforcement action against Deutsche Bank, as trustee of various mortgage loan trusts, for violations of the California Unfair Competition Law and the Los Angeles Municipal Code. The complaint, filed in California state court, alleges that over the past four years Deutsche Bank took title as trustee of more than 2,000 residential properties in the City of Los Angeles through foreclosure and then created public nuisances by failing to properly maintain them. The City also claims that Deutsche Bank illegally forced tenants from their homes, primarily in low-income areas, after taking title through foreclosure. The City seeks restitution, civil penalties, and an injunction from further violations of the law. Complaint (Part 1). Complaint (Part 2).
DOJ Sues Deutsche Bank and MortgageIT for $1.1 Billion Related to Mortgage Lending Activities
On May 3, 2011, the U.S. Department of Justice filed suit in the Southern District of New York against Deutsche Bank AG and MortgageIT Inc. (which was a wholly owned by Deutsche Bank), asserting multiple claims under the False Claims Act as well as claims for breach of fiduciary duty, gross negligence, negligence and indemnity. The Complaint arises out of MortgageIT’s activities as a qualified Direct Endorsement Lender of the Federal Housing Administration (“FHA”) of the Department of Housing and Urban Development (“HUD”). From 1999 through 2009, the defendants originated mortgages that were insured by FHA. The Complaint alleges that during this time the defendants lied to FHA to maintain their Direct Endorsement Lender status which in turn allowed them to continue originating loans that were insured by FHA. The DOJ alleges that the defendants failed to abide by FHA’s standards to control the amount of risk the program would assume by funding mortgages that did not satisfy the underwriting guidelines and failing to implement quality control provisions to monitor the strength of the loans. The Complaint also alleges that HUD has paid more than $386 million in FHA insurance claims arising out of mortgages originated by the defendants. The DOJ seeks treble damages and penalties under the False Claims Act, as well as compensatory and punitive damages in connection with its other claims. Complaint.
Allstate Sues Merrill Lynch and Credit Suisse for Fraud
On February 28, 2011, Allstate Insurance, represented by Quinn Emanuel, filed complaints against Merrill Lynch and Credit Suisse affiliated entities in New York state court in connection with Allstate’s purchase of RMBS from those entities. The complaints follow similar complaints by Allstate against JP Morgan, Washington Mutual, Bear Stearns, Citigroup, and Deutsche Bank entities. The complaints allege that defendants fraudulently misrepresented the quality of the loans underlying the RMBS they underwrote and sold to plaintiff. Both complaints allege causes of action for common law fraud, fraudulent inducement, and negligent misrepresentation. The complaint against Merrill Lynch also adds claims for violations of Sections 11, 12(a)(2), and 15 of the ’33 Act. Allstate purchased over $167 million in RMBS from Merrill Lynch and over $231 million from Credit Suisse. CS Complaint. Merrill Complaint.
Allstate Sues JP Morgan, Washington Mutual, Bear Stearns, Citigroup, and Deutsche Bank for Fraud
On February 18, 2011, Allstate Insurance filed complaints against Citigroup- and Deutsche Bank-affiliated entities in New York state court. Two days earlier, Allstate filed a similar complaint in the same court against a number of JP Morgan, Washington Mutual, and Bear Stearns entities. The three complaints each allege that defendants fraudulently misrepresented the quality of the loans underlying the RMBS they underwrote and sold to plaintiff. Allstate brings causes of action for negligent misrepresentation and common law fraud in all three actions and for violations of Sections 11 and 12(a)(2) of the ’33 Act against JP Morgan and Citigroup but not Deutsche Bank. Allstate purchased over $200 million in RMBS from Citigroup, over $185 million from Deutsche Bank, and over $750 million from JP Morgan. Complaint Against Citigroup. Complaint Against Deutsche Bank.
Massachusetts Mutual Sues Deutsche Bank Over $125 Million in RMBS
On February 16, 2011, Massachusetts Mutual Life Insurance Company filed a complaint in the Massachusetts federal District Court alleging that various Deutsche Bank entities and certain of their officers violated Massachusetts’s blue sky laws by misrepresenting characteristics of the loans backing $125 million in RMBS sold to Massachusetts Mutual in 11 different offerings. Massachusetts Mutual alleges that it lacked access to the loan files, making the defendants its exclusive source of information regarding the loans. Massachusetts Mutual is represented by the Quinn Emanuel firm. Complaint.