New York Court of Appeals

New York High Court Affirms Dismissal of Repurchase Claims As Untimely

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On October 16, the New York Court of Appeals affirmed the dismissal of the RMBS repurchase action brought by Deutsche Bank National Trust Company, in its capacity as Trustee of the Harborview Mortgage Loan Trust Series 2007-7, against Quicken Loans Inc., the originator of the loans at issue. Although the Court of Appeals’ earlier decision in ACE found that causes of action for breaches of representations and warranties contained in an RMBS contract accrue on the closing date, the Trustee here relied on language in the Mortgage Loan Purchase and Warranties Agreement (“MLPWA“) that it claimed extended the statute of limitations. Specifically, the Trustee cited language in the MLPWA stating that a cause of action arising from a breach of a representation or warranty shall accrue upon the discovery of a breach by the purchaser and the failure by the seller to repurchase the defective loan at issue. The Court of Appeals affirmed the First Department’s holding that the Trustee’s claims were time-barred, rejecting the Trustee’s argument that the MLPWA created a substantive condition precedent. The Court of Appeals held the provision at issue merely set forth a remedy for a preexisting wrong, the breach of representations and warranties at the time of sale. It further found that an agreement to postpone the accrual of the cause of action would be inconsistent with New York law and public policy, which does not allow for parties to enter into an agreement that would preemptively extend the statute of limitations in this manner.

New York Court of Appeals Hears Arguments on RMBS Put-Back Claim Statute of Limitations

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On April 30, 2015, New York’s highest court heard arguments in ACE Securities Corp. v. DB Structured Products Inc. regarding the accrual date for RMBS put-back claims – i.e., the date on which the statute of limitations begins to run.  Plaintiff ACE appealed an intermediate appellate court’s ruling that claims for breaches of representations and warranties are time-barred unless brought within six years of the transaction’s closing date.  ACE argued that the claim does not accrue, and the statute of limitations does not begin to run, until a demand for cure or repurchase has been made and rejected, contending that investors may not know of the alleged representation and warranty breaches within six years of closing.  The defendant argued that if the Court adopted plaintiff’s approach and ruled that a put-back claim does not accrue until demand is made, plaintiffs would be able to tactically take a “wait and see” attitude.  Depending on how the deal performs, they potentially could wait for decades after a transaction was entered into before making a repurchase demand, and only then bring suit if the demand is rejected.

Appellants’ Brief Filed in New York Court of Appeals in Case Alleging Fraudulent Restructuring by MBIA

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On March 16, 2011, plaintiffs in ABN Amro Bank, et al. v. MBIA Inc., et al. filed their opening brief in the New York Court of Appeals. Plaintiffs are appealing the 3-to-2 decision of an intermediate appellate court dismissing their suit challenging the “fraudulent restructuring” of monoline insurer MBIA. The case, brought by a group of banks that are beneficiaries of MBIA’s structured finance-related policies, claims that MBIA transferred $5 billion in assets from MBIA Insurance Corporation (a failing subsidiary) to MBIA Illinois (a stronger subsidiary). The move, which occurred in February 2009, was approved by the then-New York Superintendent of Insurance. The plaintiffs’ complaint alleges that the restructuring rendered MBIA Insurance insolvent, was intended to defraud creditors, and was an abuse of corporate form. On appeal, plaintiffs argue that the intermediate appellate court’s holding that their complaint was an improper collateral attack on the Superintendent’s regulatory approval is wrong because they had no opportunity to be heard before the Superintendent gave the approval, because New York insurance law does not bar their claims under the Debtor and Creditor Law, and because the intermediate appellate court improperly shifted the burden to plaintiffs in considering MBIA’s motion to dismiss. Brief.