New York State Supreme Court

RMBS Trust Files $293 Million Suit Against EMC Mortgage and JPMC

On May 25, 2012, the securitization trust of two RMBS sold in 2006 by EMC Mortgage LLC filed a summons with notice in New York State Supreme Court. The action seeks specific performance, compensatory damages in the amount of at least $293 million, and declaratory judgment against EMC and its successor in interest JP Morgan Chase & Co. The summons and notice alleges that EMC failed to cure breaches of representations and warranties it made relating to the quality of the pool of residential mortgage loans. The trust alleges breaches with respect to at least 1,917 of the loans and requests repurchase of those loans. Summons with Notice.

New York Court Dismisses RMBS Claims Brought By CIFG against Goldman and M&T Bank

On May 1, 2012, Justice O. Peter Sherwood of the New York State Supreme Court dismissed the majority of claims brought by CIFG Assurance North America, an insurer of RMBS, against M&T Bank and Goldman Sachs, the originator and underwriter respectively of those securities. CIFG asserted causes of action for fraud, breach of contract and accounting and seeks $275 million in damages based on alleged misrepresentations and omissions in RMBS offerings. The court dismissed all claims against M&T for lack of standing, and dismissed the fraud and accounting claims against Goldman Sachs, allowing only the breach of contract claims against Goldman Sachs to remain.  Decision.

New York Court Dismisses Insurer Claims In $1.8 Billion RMBS Suit

On February 28, 2012, New York State Supreme Court Judge Bernard J. Fried rejected an attempt by Syncora and CIFG Assurance to plead new claims against Greenpoint Mortgage Funding after their initial claims were dismissed in March of 2010.  The court held that the new claims, which were based on evidence, documents and knowledge that the insurers had during the initial suit, were barred by the doctrine of res judicata, which precludes relitigation of issues already decided.  The initial suit was filed by the insurers and U.S. Bank as trustee for over $1.8 billion.  Decision.

Second Circuit Orders Bank of America Settlement Remanded to New York Supreme Court

On February 27, 2012, the United States Court of Appeals for the Second Circuit reversed the decision of the United States District Court for the Southern District of New York and ordered the district court to remand to New York State Supreme Court the proceeding seeking court approval of the $8.5 billion Bank of America settlement of claims based on alleged breaches of representations and warranties in connection with RMBS securitizations.  The district court had determined that it had subject matter jurisdiction pursuant to the Class Action Fairness Act, reasoning that the settlement approval proceeding constituted a “mass action.”  In reversing, the Second Circuit concluded that the “securities exception” to the Act applied, and that the federal court therefore lacked jurisdiction.  Decision.

Loreley Financing Initiates CDO Actions Against Deutsche Bank, Bank of America, Countrywide and Merrill Lynch

On October 5, 2011, Loreley Financing (“Loreley”), a group of special purpose entities based in the Channel Islands, commenced two actions in New York State Supreme Court concerning the sale of CDO’s. In the first action, Loreley filed a complaint against Deutsche Bank in connection with a $440 million investment in six CDOs between 2005 and 2007. Loreley accuses Deutsche Bank of concealing inside knowledge, gathered through its work originating subprime loans and securitizing RMBS, that the loans underlying the CDOs were highly risky and very likely to default. Loreley alleges that Deutsche Bank marketed the CDOs to Loreley while offloading the riskiest RMBS off its own books into the CDOs and contemporaneously advising favored clients to place short bets against the same assets. The complaint alleges common-law claims for fraud, rescission, conspiracy to defraud, aiding and abetting fraud, fraudulent conveyance, and unjust enrichment. Complaint.

The second action, in which Loreley has to date filed only a summons with notice, involves preliminary allegations against Bank of America, Countrywide and Merrill Lynch based on a $92 million investment in two CDOs. Without making any factual allegations, Loreley asserts common-law claims for rescission, fraud, fraudulent inducement, conspiracy to defraud, fraudulent conveyance, aiding and abetting fraud, breach of fiduciary duty, and unjust enrichment. Summons.

Dexia SA Cites Deutsche Bank’s Internal MBS Descriptions In Suit Over $1 Billion in RMBS Purchases

On July 13, 2011, Dexia SA filed a lawsuit in New York State Supreme Court against Deutsche Bank AG and several of its affiliates in connection with its purchase of more than $1 billion in RMBS between 2005 and 2007 from the Deutsche Bank defendants. Dexia asserts state law claims for fraud, fraudulent inducement, aiding and abetting fraud and negligent misrepresentation. The complaint alleges that the defendants made false or misleading statements to prospective investors touting the quality of the RMBS, the underlying loans and the defendants’ due diligence process while, at the same time, defendants’ internal documents disparaged the RMBS and the defendants took positions in CDOs and credit default swaps that were effectively betting against the performance of similar RMBS. Dexia Complaint vs. Deutsche Bank.

MBIA Files RMBS-Related Action Against Morgan Stanley and Affiliates

On December 6, 2010, MBIA Insurance Corp. filed an action against Morgan Stanley and certain of its affiliates in New York State Supreme Court, Westchester County, alleging that Morgan Stanley fraudulently induced MBIA to insure $223 million of RMBS certificates backed by Alt-A loans. MBIA alleges that it has identified loans that breach the representations and warranties made by the defendants in pre-contract negotiations, but that it has been rebuffed in its efforts to have those loans repurchased. MBIA also alleges that the loan pool servicer has failed to undertake appropriate loss mitigation efforts. Complaint.