Justice Marcy Friedman

New York Court Dismisses Claims against EquiFirst and Barclays as Untimely

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.

Justice Friedman of the New York Supreme Court Dismisses Two FHFA Repurchase Actions

On April 12, 2016, Justice Marcy Friedman of the New York Supreme Court granted motions to dismiss in two RMBS breach of contract actions filed by FHFA against Morgan Stanley ABS Capital I Inc. (“MSAC”) and Morgan Stanley Mortgage Capital Holdings LLC (“Morgan Stanley”).  In the decisions, he Court dismissed the actions on similar grounds and granted the parties the opportunity to brief claims for failure to notify, in light of the October 13, 2015 First Department’s decision in Nomura Home Equity Loan Inc. Series 2006-FM2 et al. v. Nomura Credit & Capital Inc.

Like Justice Friedman’s ruling last month in ACE Securities v. DB Structured Products, Inc., which we previously covered, the Court held that both actions were not rendered untimely by the Plaintiff’s failure to file repurchase demand condition precedent prior to the filing of the summons with notice.  However, the FHFA, as certificate holder, lacked standing to commence the action and thus the Trustee’s cause of action was untimely because it did not relate back to the FHFA’s summons with notice.  In so holding, the Court rejected the Trustee’s arguments in both cases that the action was timely commenced, and also that the accrual clause in the RMBS extended the statute of limitations, and that the federal Housing and Economic Recovery Act of 2008, applicable to certain actions brought by FHFA, extended the limitations period.  Finally, the Court also held that no tolling agreements saved Trustee’s claims, and also dismissed the causes of action for breach of the implied covenant of good faith and fair dealing, breach of repurchase obligations, and anticipatory breach. Decision 116. Decision 134.

Trustees Seek Approval of $4.5 Billion Settlement

On January 20, trial commenced before Justice Marcy Friedman in New York County Supreme Court to determine whether Deutsche Bank, U.S. Bank, and the other trustees of 330 RMBS trusts acted reasonably when they reached a $4.5 billion settlement of claims against JP Morgan in its capacity as sponsor of those trusts.  Under the proposed agreement, JP Morgan would make a $4.5 billion payment to be distributed among the trusts and perform certain mortgage loan servicing improvements in exchange for a release of claims related to mortgage loan representations and warranties and mortgage loan servicing.  There are two objectors that have challenged the validity and fairness of the settlement:  Ambac, which insured eight of the trusts, and W&L Investments, LLC, a certifcateholder in two of the trusts. The trial is expected to last roughly two weeks.  Amended Petition.

Repurchase Action Against Natixis Real Estate Holdings, LLC Survives Motion to Dismiss

On July 1, Justice Marcy Friedman of the Supreme Court of New York for New York County denied Natixis Real Estate Holdings, LLC’s (“Natixis”) motion to dismiss a repurchase action brought by Wells Fargo Bank, N.A., and Computershare Trust Company, N.A. in their collective capacity as Securities Administrator for Natixis Real Estate Capital Trust 2007-HE2.  Consistent with her prior rulings in repurchase actions, held that the action was timely because the six-year statute of limitations for the claims only began to run on the execution date of the PSA, and not on the “as of” or effective date of the PSA.  The court also ruled that a timely repurchase demand was not a condition precedent under the PSA at issue and that the plaintiff had adequately alleged in its complaint that Natixis had discovered loans that breached representations; thus, the court held that plaintiff’s failure to make a timely repurchase demand did not warrant dismissal of the action.

Justice Friedman further held that the Securities Administrator had standing to assert the repurchase action against Natixis on behalf of the Trust, rejecting the argument that only the Trustee could bring the suit, as the Securities Administrator’s rights and duties are limited only to administrative tasks and not discretionary ones.  The court also dismissed the plaintiff’s claims for rescissory and consequential damages and attorneys’ fees, and struck the plaintiff’s jury demand, without opposition.  Order.