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.
New York County Supreme Court
Court Grants in Part and Denies in Part Nomura’s Motion to Dismiss Trustee Repurchase Action
On July 18, Justice Marcy Friedman of the New York County Supreme Court, Commercial Division, granted in part and denied in part Nomura Credit & Capital Inc.’s motion to dismiss claims brought by HSBC, as Trustee for the NAAC 2006-AF2 RMBS Trust, seeking damages, specific performance and indemnification for alleged breach of contract. Relying on her order from a prior case involving Nomura, Justice Friedman held that the causes of action for damages and specific performance were adequately pled to the extent they were based on Nomura’s alleged breaches of representations and warranties regarding mortgage loans. Justice Friedman held that the relief available to the plaintiff was limited, by operation of the sole remedy provision of the parties’ contract, to specific performance of the repurchase protocol or damages consistent with the protocol’s terms. She thus dismissed plaintiff’s cause of action seeking rescissory damages. Justice Friedman also rejected the plaintiff’s argument that alleged willful misconduct rendered the sole remedy provision unenforceable, holding both that plaintiff failed to adequately allege intentional wrongdoing by Nomura and that the sole remedy provision was not the type of exculpatory clause that could be rendered unenforceable by willful misconduct. Finally, Justice Friedman rejected plaintiff’s request for attorneys’ fees, holding that the indemnification provision in the parties’ contract did not clearly provide for fee shifting in lawsuits between the parties. Order.
EMC Obtains Partial Dismissal of Repurchase Action
On May 29, Justice Eileen Bransten of the New York County Supreme Court denied in part and granted in part defendants’ motion to dismiss a loan repurchase lawsuit brought at the direction of certain certificate holders of four RMBS. The complaint alleged that EMC Mortgage breached certain representations and warranties concerning loans in the trusts and also sought to hold certain JPMorgan entities vicariously liable for EMC’s alleged breaches. Justice Bransten dismissed without prejudice the claims against the JPMorgan entities for failure to properly plead successor liability or parent liability. As to EMC, the Court rejected EMC’s argument that the claims were limited to certain loans identified in timely repurchase demands, holding that the content of the specific repurchase demands at issue sufficiently and timely notified EMC of its alleged obligation to repurchase all allegedly breaching loans in the trusts. Justice Bransten also relied on Plaintiff’s allegation that EMC discovered allegedly breaching loans during its pre-closing due diligence to hold that Plaintiff’s claims as to all allegedly breaching loans in the transaction were timely. Justice Bransten refused to dismiss plaintiff’s unjust enrichment claims, which were based upon allegations that EMC withheld settlement funds received from loan originators that properly belonged to the Trust, holding that the PSA’s sole remedy clause does not preclude these claims. Finally, Justice Bransten dismissed claims for consequential and rescissory damages as barred by the sole remedy provision, and dismissed plaintiff’s reimbursement claim because the PSA did not unmistakably provide for attorney’s fees in first-party actions. Order.
Bayernische Landesbank Files $810 Million RMBS Suit Against Deutsche Bank
On April 19, 2012, Bayerische Landesbank (“Bayern”), a German bank, filed an $810 million suit against Deutsche Bank and certain of its affiliates in New York County Supreme Court. Bayern alleges Deutsche Bank fraudulently obtained, securitized, marketed, and sold Bayern RMBS while internally disparaging the quality of the loans underlying the RMBS. Bayern allegedly purchase 22 securitizations and claims that Deutsche Bank and the originators violated the represented originator underwriting guidelines, made material misrepresentations in the offering documents as to the quality of the underlying loans, and knew, as a result of their due diligence, that the underlying loans were destined to fail. The complaint includes claims for fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation, and seeks compensatory and/or rescissory damages. Complaint.
Ambac Files $856 Million RMBS Insurance Suit Against Bank of America and Merrill Lynch
On April 16, 2012, bankrupt insurer Ambac Financial Group filed suit against Bank of America as successor to Merrill Lynch, Merrill Lynch, and certain of its affiliates, in New York County Supreme Court. The complaint alleges that Merrill Lynch fraudulently induced Ambac into insuring $856 million in RMBS consisting of low-quality mortgages. Ambac alleges that Merrill Lynch misrepresented the quality of the loans, the underwriting guidelines followed, the due diligence performed, and the disclosures as to the loans, and that Ambac was required to pay out hundreds of millions of dollars in insured claims. The complaint includes claims for fraudulent inducement, breaches of representations and warranties, breach of contract, indemnification, and reimbursement. Complaint.