HSBC

NY Intermediate Appellate Court Reverses Dismissal of HSBC RMBS Suit Against Deutsche Bank

 

HSBC, the trustee of two securitizations at issue, successfully appealed the 2018 dismissal of its complaint alleging that DB Structured Products Inc. (DBSP), the sponsor of the two securitizations at issue, breached Mortgage Loan Purchase Agreements and Pooling and Servicing Agreements by securitizing loans in breach of representations and warranties and subsequently failing to disclose its discovery of those breaches. The trial court granted a motion to dismiss without leave to amend because it interpreted the contract language as providing that DBSP had no obligation to inform HSBC when it discovered loan-level breaches due to language in the governing agreements that DBSP notify itself of breaches. A split panel of the New York Appellate Division, First Department, reversed the trial court decision, finding that the contract was ambiguous because of the nonsensical nature of the notice provision, which required DBSP to provide notice to itself and granted HSBC leave to amend its complaint.

New York Court Orders BlackRock to Seek Discovery from Former Certificateholders and Produce That Information in Suit Against RMBS Trustee

On June 3, 2016, Judge Sarah Netburn of the U.S. District Court for the Southern District of New York ordered BlackRock, an RMBS certificateholder that has sued the RMBS trustee, HSBC, to identify and serve document subpoenas on the former owners of BlackRock’s RMBS certificates. BlackRock’s lawsuit against HSBC (which we previously discussed here) asserts several causes of action arising out of HSBC’s alleged failure to fulfill its contractual, statutory, and fiduciary obligations as Trustee. HSBC argued in its motion to compel production that the requested documents from the former owners are directly relevant to proving HSBC’s affirmative defenses and showing that BlackRock lacks standing to assert the litigation rights of the prior certificateholders.  The Court agreed, holding that BlackRock cannot assert the litigation rights of the prior certificateholders without assuming the corresponding discovery obligation.  Order.

HSBC Sues Merrill Lynch and Bank of America for $420 Million Relating to RMBS Deal

On May 24, 2016, HSBC Bank USA, N.A., in its capacity as Trustee of Merrill Lynch Alternative Note Asset Trust, Series 2007-0AR5 (“the Trust”), served a summons with notice on Merrill Lynch Mortgage Lending, Inc. (“Merrill”), Countrywide Home Loans, Inc. (“Countrywide”), and Bank of America, N.A. (“BofA”), in their respective capacities as sponsor, originator, and servicer of the Trust, alleging that the three Defendants discovered that mortgage loans securitized in the Trust breached certain representations and warranties and failed to notify the Trustee in accord with their contractual obligations.  Specifically, HSBC alleges that Merrill, Countrywide, and BofA discovered the breaches through (i) the performance of their respective roles as issuer, originator, and servicer; and (ii) through their participation in multiple government investigations related to the origination, securitization, and servicing or mortgage loans.  The summons with notice seeks $420 million in damages. Summons with Notice.

Motion to Dismiss Action Against RMBS Trustee Denied

On March 31, 2015, Judge Shira Scheindlin of the U.S. District Court for the Southern District of New York denied HSBC Bank USA, National Association’s (“HSBC”) motion to dismiss an action brought by a consortium of investors in RMBS for lack of subject matter jurisdiction.  The plaintiffs’ Complaint alleges, inter alia, that HSBC failed to discharge its duties as Trustee for 271 RMBS Trusts in violation of the Trustee Indenture Act (“TIA”) and state common law.  Because the TIA governs only 27 of the 271 Trusts at issue, the plaintiffs invoked supplemental jurisdiction as the basis for the court to hear the claims as to the remaining 244 Trusts.  Judge Scheindlin denied HSBC’s motion, holding that the plaintiffs’ claims all arise from the “same nucleus of operative fact” because the relevant governing agreements all contain substantially similar contract provisions and impose similar duties on HSBC in its capacity as Trustee.  Judge Scheindlin added that judicial economy would be served by retaining supplemental jurisdiction as proof of both the TIA and non-TIA claims would require depositions of many of the same witnesses.  Order.

NCUA Sues HSBC For Alleged Breaches of Duties as Trustee for 37 RMBS Trusts

On March 20, the National Credit Union Administration Board, acting as liquidating agent for five failed credit unions, filed suit against HSBC USA in the Eastern District Court of Virginia.  NCUA alleged that HSBC breached its duties as trustee for 37 RMBS trusts from which the credit unions had purchased $2.37 billion in certificates.  In particular, NCUA alleges that HSBC failed to enforce loan originators’ repurchase obligations in connection with alleged breaches of representations and warranties about the loans in the trusts, failed to prudently address servicer or master servicer defaults, and failed to ensure proper conveyance of the loan files to the trusts.  NCUA asserts claims for breach of contract, breach of fiduciary duty, negligence, negligent misrepresentation, breach of the covenant of good faith, violation of the Streit Act, and violation of the Trust Indenture Act.  Complaint.

Phoenix Light Sues Five RMBS Trustees Over $2.4 Billion in RMBS

On December 23 and 24, Phoenix Light SF Limited and other RMBS certificateholders filed suit against HSBC, Wells Fargo, Deutsche Bank, Bank of New York Mellon, U.S. Bank, and Bank of America in the United States District Court for the Southern District of New York regarding $2.4 billion in RMBS. The complaints assert causes of action under the Trust Indenture Act and a provision of the New York Real Property Law known as the Streit Act, as well as under state law for breach of contract, breach of fiduciary duty, negligence, gross negligence, and negligent misrepresentation. Plaintiffs allege that the trustees breached their duties under the governing trust agreements by failing to notify the investors of deficiencies in the loans, failing to take action to address those alleged deficiencies, and failing to require the repurchase of defective loans. Plaintiffs seek compensatory damages and unspecified equitable relief.  HSBC ComplaintWells Fargo ComplaintDeutsche Bank ComplaintBNY Mellon ComplaintU.S. Bank and Bank of America Complaint.

HSBC Settles RMBS Claims with FHFA

On September 12, the FHFA and several HSBC affiliates and certain of their current and former officers (collectively, HSBC) announced a US$550 million settlement of claims that the FHFA had brought against HSBC in the Southern District of New York.  FHFA, acting as conservator for Fannie Mae and Freddie Mac, alleged that HSBC made false and misleading statements in offering documents issued in connection with 19 RMBS securitizations.  It brought claims for violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as well as the Virginia and Washington, D.C., Securities Acts.  HSBC did not admit liability or wrongdoing.  Settlement Agreement.

Federal Court Dismisses In Part Putback Claims Against Deutsche Bank

On July 23, Judge Robert W. Sweet of the United States District Court for the Southern District of New York dismissed in part a suit asserting putback claims against Deutsche Bank.  HSBC, as trustee of the securitization at issue, brought suit for (i) alleged breaches of Deutsche Bank’s representations and warranties regarding underlying mortgage loans and (ii) Deutsche Bank’s failure to repurchase the loans upon request by the trustee.  The court held that failure to provide the repurchase remedy is not an “independent” breach of contract.  The court also dismissed HSBC’s declaratory judgment claim for reimbursement of its out-of-pocket expenses as duplicative of HSBC’s breach of contract claims.  The court held, however, that plaintiff had adequately pled claims for breach of contract, including as to mortgages no longer held by the trust, and could pursue money damages allegedly required to make the plaintiff whole, as well as rescissory damages.  Order.

Bank of America Reaches Pre-Litigation Settlement with NCUA for RMBS Losses

On April 2, the National Credit Union Administration (NCUA), an independent federal agency that supervises and charters federal credit unions, reached a $165 million settlement with Bank of America, stemming from BofA’s sale of RMBS to failed credit unions.  Bank of America did not admit any fault in the agreement.  NCUA previously reached similar settlements with Citigroup, Deutsche Bank and HSBC.  NCUA did not file a lawsuit against Bank of America, although litigation is pending between NCUA and several other financial institutions.  Press Release.

Fed Releases Citi and HSBC Mortgage Servicing and Foreclosure Action Plans

On May 24, the Fed released action plans for Citigroup and HSBC to correct alleged deficiencies in residential mortgage loan servicing and foreclosure processing. The Fed also released the engagement letter between Ally and the independent contractor retained to review foreclosures that were processed in 2009 and 2010. Fed Release.