On June 18, trustee HSBC filed suit on behalf of ACE Securities Corp. Home Equity Loan Trust Series 2006-SL2 against DB Structured Products, Inc., a Deutsche Bank Subsidiary, in New York state court. The complaint attempts to revive claims previously dismissed by New York’s First Department intermediate appellate court. In its December 2013 decision, the First Department held that the Trustee’s claims were untimely and that the certificate holder-plaintiffs who initially had brought the claims lacked standing to sue. Plaintiff asserts that the new complaint is properly brought under a procedure that permits refiling a suit within six months after dismissal on certain grounds, alleging that it has cured the deficiencies previously identified by the First Department. In the new action, the plaintiff again alleges that DB Structured Products breached contractual representations and warranties related to mortgage loans underlying the securitization at issue. Complaint.
New York’s First Department
New York Appellate Court Rejects MBIA’s Pursuit of Rescissory Damages
On April 2, New York’s First Department appellate court ruled that MBIA Insurance Corporation may not obtain rescissory damages in its breach of contract action against Countrywide because MBIA had freely given up its right to seek rescission in the contracts under which it sued. The court also ruled that if MBIA were to prevail on its claims for breach, Countrywide could be compelled to repurchase breaching loans even if those loans are not yet in default. The court concluded that the language in the agreements at issue permitted repurchase if MBIA’s interests were “materially and adversely” affected and that such an effect could arise even if the loans had not defaulted. Order.
New York State Appeals Court Affirms Denial of BofA’s Motion to Sever and Consolidate Successor Liability Claims
On April 5, 2012, a five-judge panel for the New York’s First Department intermediate appellate court affirmed a lower court’s ruling that denied Bank of America’s motion to sever successor liability claims brought against it from the primary claims in four separate actions brought by four monoline insurers. Bank of America had requested that, once severed from the underlying lawsuits, the successor liability claims should be consolidated into a separate proceeding for discovery purposes. The four insurers, Ambac Assurance Corp, Financial Guaranty Insurance Co, MBIA Inc, and Syncora Guarantee Inc., claim in their respective lawsuits that Countrywide ignored underwriting guidelines, resulting in loans that were riskier than had been represented to the insurers and thus subjecting the insurers to billions of dollars in insurance claims when the loans defaulted. They seek to hold Bank of America liable under theories of successor liability related to Bank of America’s acquisition of Countrywide. In affirming the denial of Bank of America’s motion, the appeals court reasoned that the four actions were at different stages of discovery and that consolidation would result in undue delay. Order.