Judge Sidney H. Stein in the United States District Court for the Southern District of New York allowed the National Credit Union Administration (NCUA) to amend its complaint to add a new plaintiff to attempt to establish standing and proceed with its lawsuit against Deutsche Bank National Trust Company (DBNTC), while granting in part DBNTC’s motion to dismiss, which limited the proceeding to NCUA’s breach of contract claims.
Originally filed November 10, 2014 (as covered here), NCUA’s complaint alleges that DBNTC failed in its duties as trustee for 37 RMBS trusts, resulting in losses to those trusts and their investors, including five failed credit unions that were taken over by NCUA. Judge Stein allowed NCUA to amend its complaint to insert a different plaintiff—Graeme W. Bush, a specially-appointed trustee selected by Bank of New York Mellon—with direct standing for a variety of NCUA Guaranteed Note Trusts (NGN Trusts) that were created from the assets of five failed credit unions after the financial crisis. Because Bank of New York Mellon serves as the trustee for the NGN Trusts, NCUA does not have direct standing, and courts had not settled on whether NCUA had derivative standing on behalf of the NGN Trusts. The NCUA’s substitution followed a Second Circuit decision in a similar case affirming the dismissal of NCUA’s derivative claims for lack of standing. NCUA also successfully substituted itself as a direct plaintiff for NGN Trusts that have “unwound” and whose underlying certificates have been returned to NCUA.
After allowing the amendment, Judge Stein went on to grant in part and deny in part DBNTC’s motion to dismiss the amended complaint. While Judge Stein found that NCUA had stated a claim for breach of contract, he found that NCUA’s negligence and breach of fiduciary duty claims were barred by the economic loss doctrine. Further, Judge Stein stayed NCUA’s claims regarding DBNTC’s use of trust funds for indemnification, finding that DBNTC may be required to return the trust funds if there is a negligence finding against it, pursuant to the terms of the governing agreements. Opinion & Order.
