On September 6, 2016, following a 3-week long bench trial in May, U.S. District Judge P. Kevin Castel of the Southern District of New York held that he will appoint a Lead Master to determine whether there are “material breaches” in 9,300 loans at issue in putback litigation against UBS. In its 239-page post-trial decision, after addressing a number of issues and discussing 20 loans, the Court appointed a Lead Master to examine each loan on an individual basis and prepare recommended findings and conclusions on liability.

The Court outlined Plaintiff’s burden of proof for breach of underwriting guidelines, holding that the Plaintiff must demonstrate it is more likely than not that the loan was not originated in compliance with the relevant underwriting guidelines, unless an exception was actually exercised, in a reasonable manner, at the time of origination. Plaintiffs will then be required to prove a breach has a “material and adverse” effect at the time UBS’s repurchase obligation was triggered. The Court held this can be shown: (1) by proving an increased risk of loss to certificateholders; (2) with evidence that a breach resulted in altered loan terms; or (3) through a showing of layered risk and/or the cumulative effect of multiple breaches. The Court held that discovery of a breach cannot be based on constructive knowledge. Instead, Plaintiffs must show actual knowledge, which may be established by circumstantial evidence, or willful blindness. Memorandum and Court Order.