On July 25, 2016, Justice Marcy Friedman of the New York Supreme Court dismissed a $619 million suit brought by U.S. Bank in its capacity as Trustee of an RMBS trust against the originator of the loans, Equifirst, Barclays’ now-defunct mortgage originator. The Federal Housing Finance Agency (“FHFA”), as conservator of an RMBS certificateholder, initially filed the summons with notice on February 28, 2013, the six-year anniversary of the securitization’s closing date. U.S. Bank waited another six months before filing the complaint on October 28, 2013. U.S. Bank brought claims for breach of contract for Equifirst’s alleged misrepresentations regarding the quality of the underlying mortgage loans, and breach of the implied covenant of good faith and fair dealing arising from an alleged failure to notify contractual counterparties of Equifirst’s alleged breaches. Relying on a recent intermediate appellate decision and her orders in similar cases, Justice Friedman dismissed those claims holding that FHFA, as a certificateholder, lacked standing to commence the action, and that the Trustee’s complaint, which was filed after the passage of the statute of limitations, did not relate back to FHFA’s summons with notice. The court granted U.S. Bank leave to replead its failure to notify claims. Order.
EquiFirst
Minnesota Federal Court Dismisses, In Part, Put-Back Claims Against Mortgage Originators
On September 30, a Minnesota federal judge granted in part and denied in part WMC’s and EquiFirst’s motions to dismiss three suits brought by U.S. Bank, as Trustee for an RMBS trust, alleging that WMC and EquiFirst breached representations and warranties in the purchase agreements relevant to each securitization. As to U.S. Bank’s breach of contract claims, Judge John R. Tunheim concluded that the contracts’ sole remedy provisions barred claims for monetary damages and limited the Trustee to specific performance of the contractual repurchase provision. The court also granted the motions to dismiss with respect to the Trustee’s claims for contractual indemnification and declaratory relief. However, Judge Tunheim denied the motion to dismiss the Trustee’s claim that the defendants were liable as a result of their failure to notify the Trustee of breaches when the defendants discovered them. The court also permitted the Trustee’s claim for damages based on gross negligence to proceed. Finally, in the same order the court granted, in part, WMC’s motion for summary judgment in a fourth related action. Opinion.