On August 15, Judge Harold Baer, Jr. of the District Court for the Southern District of New York denied UBS Real Estate Securities Inc.’s motion to dismiss a suit by several RMBS mortgage trusts in connection with the repurchase of $1.6 billion of mortgage loans. The trusts allege that UBS failed to repurchase mortgage loans that violated representations and warranties in the underlying agreements. UBS moved to dismiss the trusts’ request for monetary damages based on the contractual clause limiting the “sole remedy” for breaches of representations and warranties to repurchase. In denying the motion to dismiss, the court rejected the trusts’ argument, holding that monetary damages could be available in lieu of specific performance of the sole remedies if specific performance was unavailable. However, the court held that plaintiff would be limited to the “Purchase Price” as the contractual measure of damages and could not obtain damages beyond that amount. Decision.
Judge Harold Baer
Second Circuit Ruling Applied to Revive MBS Claims
On May 1, Judge Harold Baer, Jr. of the U.S. District Court for the Southern District of New York reinstated previously dismissed claims in two class actions brought by several pension fund plaintiffs against Royal Bank of Scotland Group PLC and Residential Capital LLC, among others. Judge Baer had previously dismissed claims under the Securities Act of 1933 as to certain RMBS for lack of standing. In light of a recent Second Circuit decision, NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145 (2d Cir. 2012), Judge Baer reconsidered his prior orders and held that the plaintiffs had standing to assert claims on behalf of purchasers of all RMBS issued under the same shelf registrations that were backed by mortgages originated by the same lenders that originated the mortgages backing the certificates purchased by the named plaintiffs. The court’s order revived claims with respect to a total of 49 offerings across both cases that previously had been dismissed. Order.
Court Limits Assured Guaranty’s Claims Against UBS
On August 15, Judge Harold Baer, Jr. of the federal district court for the Southern District of New York granted in part and denied in part UBS’s motion to dismiss claims asserted by Assured Guaranty Municipal Corporation in connection with three RMBS securitizations insured by Assured Guaranty. Judge Baer held that Assured Guaranty did not have the contractual right to bring claims for breach of the relevant Pooling and Servicing Agreements’ repurchase remedies and that its claims for a declaration that UBS had failed to comply with its repurchase obligations should be dismissed as duplicative of its claim for breach of those obligations. The court permitted Assured Guaranty to proceed, however, with other contract claims including its claim for breach of certain representations and warranties in the PSAs, concluding that the PSAs’ “no-action clauses” do not apply to Assured Guaranty as insurer and that a contractual “sole remedy” provision “may not apply to Assured,” a factual issue to be determined at a later stage of the case. Decision.
S.D.N.Y. Judge Preserves Plaintiffs’ Section 11 Claims Against Residential Capital
On April 28, 2011, Judge Harold Baer, District Judge in the Southern District of New York, granted in part and denied in part the defendants’ motion to dismiss in New Jersey Carpenters Health Fund, et al. v. Residential Capital, LLC et al. Plaintiffs are institutional investors who purchased mortgage-backed securities from Residential Capital LLC and its underwriters in 2006 and 2007. The complaint alleges that defendants violated Sections 11, 12(a)(2), and 15 of the ’33 Act by making misstatements about the value of the securities in the offering documents. The Court denied defendants’ motion to dismiss the section 11 claims, finding that the loss in value when the securities dropped from investment grade to junk status was a cognizable loss, even if the purchaser continues to hold the securities. The Court, however, granted defendants’ motion to dismiss the section 12(a)(2) claims because it found that, while the plaintiffs alleged the securities purchased and the date of purchase, they failed to allege that they directly purchased the securities from the defendants. The Court also granted defendants’ motion to dismiss the section 15 claims against the underwriters, holding that the complaint’s allegations that the underwriter defendants were “controlling persons” were conclusory. The Court further found that the claims were timely, and that the defendants had not shown that a reasonably diligent purchaser would have discovered the high delinquency rates when purchasing the securities. Decision.