On August 19, in an oral ruling from the bench, Vice Chancellor J. Travis Laster of the Delaware Chancery Court dismissed as time-barred loan repurchase claims brought by U.S. Bank as trustee of an RMBS trust against JPMorgan and EMC Mortgage. U.S. Bank alleged that EMC misrepresented the quality of more than US$500 million worth of mortgages that were sold to the trust in 2006 and that both EMC and JPMorgan, which took over as the servicers of the trust in 2011, failed to notify the trustee of the faulty loans. Vice Chancellor Laster, following the Delaware Chancery Court’s 2012 decision in Central Mortgage Co. v. Mortgage Stanley Capital Holdings LLC., held that Delaware’s three-year statute of limitations for breach of contract claims began to run on the day the allegedly false representations were made. He held that the contract’s accrual provision could not extend the statute of limitations and that no other tolling doctrines applied to render plaintiff’s claims timely. He also held that the alleged failure to notify claim was derivative of the underlying claim for breach of representation and subject to the same limitations period. Vice Chancellor Laster did not dismiss U.S. Bank’s claims for unjust enrichment and failure to provide documents, finding them well pled and not time barred. Hearing Transcript.
EMC Mortgage
New York Appellate Court Dismisses Syncora’s $320M RMBS Suit Against J.P. Morgan
On August 13, the First Department of the Appellate Division of the Supreme Court of New York reversed a trial court decision denying Syncora Guarantee Inc.’s motion for summary judgment in an action against J.P. Morgan Securities LLC. Syncora’s suit alleged $320 million in losses resulting from its insurance of an RMBS transaction underwritten by Bear Stearns and sponsored by EMC Mortgage, entities that J.P. Morgan acquired in 2008. In this action, Syncora asserted claims for fraudulent inducement and tortious interference against J.P. Morgan, similar to the claims that it had been denied leave to assert against Bear Sterns in an earlier-filed federal court action. J.P. Morgan moved for summary judgment and dismissal on the basis of res judicata, but the trial court denied the motion, finding that J.P. Morgan and EMC had no pre-existing substantive legal relationship, and therefore no privity existed between them. The First Department reversed, finding sufficient privity existed between J.P. Morgan and EMC based on Syncora’s own allegations that the companies acted in concert in the alleged scheme. Decision.
Ambac’s RMBS Claims Against EMC and JPMorgan Dismissed in Part
On June 13, Justice Charles E. Ramos of the Supreme Court of the State of New York dismissed in part an action brought by Ambac Assurance Corp. (Ambac) against EMC Mortgage and JPMorgan Chase & Co. Ambac’s case relates to seven securitizations that it wrapped in 2006. Justice Ramos dismissed Ambac’s claims for breach of contract, holding that Ambac did not have standing to enforce the “sole remedy” of loan repurchase provided for by the transaction documents. Justice Ramos denied defendants’ motion to dismiss Ambac’s fraud claim, concluding that there are factual issues as to whether Ambac justifiably relied on the alleged misrepresentations. Decision.
RMBS Trust Files $293 Million Suit Against EMC Mortgage and JPMC
On May 25, 2012, the securitization trust of two RMBS sold in 2006 by EMC Mortgage LLC filed a summons with notice in New York State Supreme Court. The action seeks specific performance, compensatory damages in the amount of at least $293 million, and declaratory judgment against EMC and its successor in interest JP Morgan Chase & Co. The summons and notice alleges that EMC failed to cure breaches of representations and warranties it made relating to the quality of the pool of residential mortgage loans. The trust alleges breaches with respect to at least 1,917 of the loans and requests repurchase of those loans. Summons with Notice.
Ambac Sues JP Morgan Over Insurance of Bear Stearns RMBS
On March 30, 2012, Ambac Assurance Corp. brought claims against J.P. Morgan Chase, EMC Mortgage, and Bear Stearns in the Supreme Court of the State of New York, alleging fraudulent marketing of RMBS by Bear Stearns. Ambac alleges that Bear Stearns, which was acquired by J.P. Morgan, misrepresented the quality of the underlying mortgage loans when obtaining insurance from Ambac on the RMBS. Ambac, which alleges losses of $200 million, brings claims for fraudulent inducement, breach of contract, and successor liability. Complaint.
S.D.N.Y. Holds Monoline Insurer Can Pursue Pool-Wide Remedy Based on Sampling of Loans
On March 25, 2011, Judge Paul A. Crotty of the Southern District of New York granted partial summary judgment to Syncora Guarantee, Inc., a monoline insurer, in a suit against Bear Stearns affiliate EMC Mortgage Corp. In that decision, Judge Crotty rejected EMC’s argument that the exclusive remedy available to Syncora for breaches of representations and warranties on Home Equity Line of Credit (“HELOC”) residential mortgage loans underlying the insured securitization was the repurchase of the individually identified, non-complying loans. Instead, the court, citing the broad rights and remedies for which Syncora bargained, accepted Syncora’s position that it “could seek a pool-wide remedy based on sampling and extrapolation.” Syncora Decision.