RMBS trust

US Bank and Bank of America Prevail on Motions to Dismiss

On May 18, 2015, Judge Katherine Forrest of the United States District Court for the Southern District of New York dismissed claims in two suits brought by private investors and the National Credit Union Association, respectively, against U.S. Bank and Bank of America in their capacity as trustees for RMBS trusts.  The lawsuits asserted several causes of action arising out of the trustees’ alleged failure to fulfill their contractual, statutory, and fiduciary obligations to hundreds of RMBS trusts.

In the first case, brought by a number of institutional investors led by BlackRock, Judge Forrest dismissed claims brought under the federal Trust Indenture Act as to 810 of the 843 trusts at issue because they were governed by Pooling and Servicing Agreements (“PSAs”), rather than indentures, and the TIA does not apply to PSA trusts.  She declined to exercise supplemental jurisdiction over the state law claims asserted in connection with the 810 PSA Trusts, holding that allowing 33 indenture trusts to pull in another 810 would allow “a federal tail to wag a state dog.”  For the remaining 33 indenture trusts, Judge Forrest dismissed the claims because the plaintiffs failed to make a demand on the proper party (the “Owner Trustee”) or allege any that such demand would have been futile.  Judge Forrest granted plaintiffs leave to amend as to the indenture trusts.  Order.

In the second case, brought by NCUA, Judge Forrest dismissed claims as to 74 out of the 82 Trusts at issue on standing grounds.  Judge Forrest held that the Amended Complaint failed to demonstrate that NCUA retained any right to sue when it re-securitized its certificates in the 74 trusts as part of the NCUA Guaranteed Note Program.  She rejected NCUA’s statutory standing argument, holding that 12 U.S.C. § 1787 does not authorize NCUA to sue on behalf of separate statutory trusts created to re-securitize the CCUs’ assets.  Additionally, Judge Forrest held that the PSAs did not allow third party beneficiary status to extend beyond direct certificateholders, meaning that NCUA no longer had standing once it ceased being a certificateholder following the re-securitization.  Order.

NCUA Sues HSBC For Alleged Breaches of Duties as Trustee for 37 RMBS Trusts

On March 20, the National Credit Union Administration Board, acting as liquidating agent for five failed credit unions, filed suit against HSBC USA in the Eastern District Court of Virginia.  NCUA alleged that HSBC breached its duties as trustee for 37 RMBS trusts from which the credit unions had purchased $2.37 billion in certificates.  In particular, NCUA alleges that HSBC failed to enforce loan originators’ repurchase obligations in connection with alleged breaches of representations and warranties about the loans in the trusts, failed to prudently address servicer or master servicer defaults, and failed to ensure proper conveyance of the loan files to the trusts.  NCUA asserts claims for breach of contract, breach of fiduciary duty, negligence, negligent misrepresentation, breach of the covenant of good faith, violation of the Streit Act, and violation of the Trust Indenture Act.  Complaint.

New York Appellate Court Orders Dismissal of Repurchase Claims Against DB Structured Products as Time-Barred

On December 19, the Appellate Division, First Department of the New York Supreme Court held that repurchase claims brought by an RMBS trust against DB Structured Products were barred by the statute of limitations, reversing the trial court’s denial of DB’s motion to dismiss.  The court rejected plaintiff-appellee’s argument that the statute of limitations for breach of representations and warranties begins to run when the bank fails to cure or repurchase a defective loan.  Instead, the claims accrued when the representations and warranties first were breached.  Plaintiff-appellee’s complaint did not relate back to an earlier summons with notice filed by the trust’s certificate holders, for two reasons.  First, the court held that the summons with notice filed was a nullity because the certificate holders failed to comply with the contractual repurchase protocol by not waiting for the expiration of the requisite 60- and 90-day periods for cure or repurchase before attempting to commence the action.  Second, the court held that the certificate holders did not have standing to sue, and that the subsequent complaint filed by plaintiff-appellee could not relate back to a summons with notice filed by a party without standing.  Decision.