RMBS Suit to Proceed Against Morgan Stanley

On June 16, 2016, Justice Marcy S. Friedman of the Supreme Court of the State of New York largely denied Morgan Stanley’s motion to dismiss a breach of contract action brought by RMBS trustee Wilmington Trust Company. The court dismissed the trustee’s claim for indemnification of attorney’s fees, finding that the contracts did not unmistakably contemplate such indemnification. The court denied without prejudice defendant’s motion to dismiss the trustee’s claim as to non-Morgan Stanley loans in the offering at issue, as the parties did not have the opportunity to address the import of recent RMBS precedent or whether the repurchase demand in this case included any such loans. The court will receive further briefing on the import of a 2015 intermediate appellate court decision, previously covered here, on plaintiff’s claim that the bank improperly failed to notify the trustee of breaches Morgan Stanley discovered. The court denied the remainder of Morgan Stanley’s motion to dismiss. Following her prior decisions (such as her decision in ACE on remand from the Court of Appeals, covered here), Justice Friedman held that the trustee’s claims for breach of contract were timely filed within the statute of limitations, and that its claim for damages was not precluded by the repurchase protocol. Order.

Greenpoint’s Motion to Dismiss Loan Misrepresentation Suit Granted in Part

On October 15, Judge Donovan Frank of the U.S. District Court for the District of Minnesota, granted in part and denied in part Greenpoint Mortgage Funding’s motion to dismiss a lawsuit filed by Residential Funding Co., an affiliate of Residential Capital.  Residential Funding alleged that Greenpoint breached representations and warranties in connection with $88 million in mortgage loans it sold to Residential Funding and that Residential Funding securitized.  Following a bankruptcy court’s 2013 approval of a global settlement of Residential Funding’s RMBS-related liabilities, Residential Funding sued Greenpoint seeking indemnification and damages for breach of contract.  Judge Frank dismissed the breach of contract claim as time barred under Minnesota’s six-year statute of limitations because the alleged breaches at issue occurred when the loans were acquired, which was more than six years before Residential Funding filed suit.  Judge Frank did not dismiss the indemnification claim, which Greenpoint argued was not properly assigned to Residential Funding, because whether Residential Funding was the proper plaintiff was a factual question that could not be resolved on the pleadings.  Order.

Motion to Dismiss Granted in Part in J.P. Morgan and WMC RMBS Trust Suit

On November 22, Justice Shirley Werner Kornreich of the Supreme Court of the State of New York partially dismissed a putback action brought by the trustee for the J.P. Morgan Mortgage Acquisition Trust 2006-WMC4 against J.P. Morgan Chase & Co. and WMC Mortgage.  The court held that damages are available only as to loans that breached representations and warranties.  The court rejected, however, JPMorgan’s argument that dismissal of certain breach claims was warranted by temporal limitations on the bank’s “bringdown” representations and warranties.  The court also denied the motion to dismiss the plaintiff’s indemnification claim at the pleading stage.  Decision.

Rating Agency Developments

On July 12, S&P updated its methodology for fees, expenses, and indemnification. S&P Report.

On July 11, Fitch updated its global surveillance criteria for trust preferred CDOs. Fitch Report.

On July 11, S&P released its methodology for public and nonprofit social housing. S&P Release.

On July 10, DBRS released its capital call lending facility criteria. DBRS Report.

On July 9, S&P requested comments, due by September 9, on its insurer rating methodology. S&P Release.

On July 6, Fitch updated its U.S. RMBS surveillance criteria. Fitch Report.

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