Phoenix Light SF Ltd.

S.D.N.Y. Grants in Part and Denies in Part Trustee Bank of New York Mellon’s Motion for Summary Judgment in Suit Brought by Certificateholder Phoenix Light

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On September 7, 2017, Judge Valerie Caproni in the United States District Court for the Southern District of New York granted the majority of RMBS trustee Bank of New York Mellon’s (“BNYM“) summary judgment motion and denied certificateholder Phoenix Light SF Ltd.’s (“Phoenix Light“) cross motion in its entirety in Phoenix Light SF Ltd. v. Bank of New York Mellon. Judge Caproni’s decision significantly curtailed Phoenix Light’s Complaint, which alleged various breaches of the trustee’s duties in connection with 21 RMBS trusts. For eight of the trusts at issue, Judge Caproni rejected Phoenix Light’s breach-of-contract claims alleging that BNYM failed to notify other parties upon discovery of breaches of representations and warranties due to lack of evidence that BNYM actually discovered any breaches. Judge Caproni also rejected the breach claims in connection with another eight trusts due to Phoenix Light’s failure to support the claims with evidence on a “loan-by-loan and trust-by-trust” basis. Only Phoenix Light’s breach-of-contract claims related to trusts where BNYM had notice of a specific breach or an event of default survived, as did Phoenix Light’s Trust Indenture Act claims for three trusts (because BNYM did not address the claims in its reply brief). The Court also granted BNYM’s motion with respect to Plaintiffs’ negligence, gross negligence, and negligent misrepresentation claims, finding that Plaintiffs’ tort-based arguments were duplicative of their breach-of-contract allegations.

RMBS Trustee Wins Partial Dismissal of Investor Claims

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On September 29, 2015, Judge Valerie Caproni of the United States District Court for the Southern District of New York partially granted RMBS trustee Bank of New York Mellon’s (“BNYM”) motion to dismiss claims brought by Phoenix Light SF Ltd., and certain other RMBS investors (together, the “Plaintiffs”).  Judge Caproni dismissed Plaintiffs’ breach of fiduciary duty claims as duplicative of Plaintiffs’ breach of contract claims, whose viability Judge Caproni also appeared to doubt in her decision, noting that “[t]he low bar at the motion to dismiss stage salvage[d] Plaintiffs’ claims for now.”  Judge Caproni explained that to survive summary judgment, Plaintiffs would need to demonstrate that BNYM possessed actual knowledge of events of default on a loan-by-loan basis.  Judge Caproni denied BNYM’s motion to dismiss Plaintiffs’ negligence, gross negligence, and negligent misrepresentation claims.  Order.

HSBC Motion to Dismiss Denied in Part in Trustee RMBS Suits by Blackrock, Royal Park Investments, and Phoenix Light

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On June 1, 2015, Judge Shira Scheindlin of the United States District Court for the Southern District of New York issued a Decision and Order granting in part and denying in part HSBC Bank USA, National Association’s (“HSBC”) motion to dismiss three related actions brought by BlackRock, Royal Park Investments SA/NV, and Phoenix Light SF Ltd., claiming $34 billion in damages.  The suits allege that HSBC breached a fiduciary duty to investors as a trustee in 283 residential mortgage backed securities trusts by failing to require lenders and bond issuers to buy back loans that breached representations and warranties. Judge Scheindlin rejected HSBC’s argument that the plaintiffs had failed to plead breaches of representations and warranties on a sufficiently granular basis and also held that plaintiffs had sufficiently alleged that the bank had specific knowledge of breaches of the representations and warranties. Judge Scheindlin dismissed claims for negligent misrepresentation and negligence as time-barred.  Judge Scheindlin gave the plaintiffs 30 days to amend their complaint to attempt to cure the deficiencies in their dismissed claim.  Order.