Nearly All Claims Against U.S. Bank Dismissed in Ambac RMBS Trustee Suit


On July 16, Judge Schofield in the United States District Court for the Southern District of New York dismissed four out of five claims in a suit filed by Ambac Assurance Corp. (Ambac) against U.S. Bank National Association (U.S. Bank), challenging the Bank’s actions as trustee for a Harborview Mortgage Loan Trust. Ambac insured certain certificateholders against low cashflow from the Trust, which was backed by Countrywide-originated mortgages. In August 2011, U.S. Bank filed suit in New York state court against Countrywide and Bank of America, as its successor, alleging failure to comply with representations and warranties. When U.S. Bank agreed to stay the state suit after Countrywide proposed a $56.96 million settlement, Ambac sued U.S. Bank in the S.D.N.Y. to enjoin the settlement, alleging that the Bank breached its obligations to trust beneficiaries by accepting a low settlement amount. In March 2017, U.S. Bank initiated a trust instruction proceeding (TIP) in Minnesota to address its claims against Countrywide; meanwhile, Judge Stein in the S.D.N.Y. found in the Ambac-led suit that, because of the ongoing TIP, U.S. Bank had not yet breached its duties, and therefore Ambac’s claims were not yet ripe. On June 1, 2018, U.S. Bank disclosed its $94 million settlement with Countrywide, conditioned on approval by the Minnesota court.

In the case before Judge Schofield, Ambac alleged that U.S. Bank accepted an unreasonably low settlement, that it improperly released other lucrative claims, and that by agreeing to stay the New York state court action and bringing the TIP, U.S. Bank had wasted trust funds, harming trust beneficiaries. Judge Schofield dismissed four of Ambac’s five claims based on these facts, finding that any alleged injury was hypothetical and far too speculative, and that Ambac had not adequately alleged that U.S. Bank taking different actions would have resulted in a more favorable settlement or negotiation position. She also rejected Ambac’s counts for declaratory judgment, because such a finding would serve no useful purpose and would not resolve all of the outstanding cases. Judge Schofield let Ambac’s breach of contract claim continue, finding that Ambac sufficiently alleged that U.S. Bank’s improper accounting of recoveries under the Pooling and Servicing Agreement harmed Ambac, because it affected the amount and timing of the insurance payments that it made. Opinion and Order.

New Derivative Suit Filed Against Current and Former Citigroup Directors in S.D.N.Y.

A Citigroup shareholder filed a derivative complaint against several current and former individual directors alleging that they breached their fiduciary duties to the company by failing to implement and maintain adequate risk management procedures in connection with the company’s residential mortgage business. The complaint also alleges that the individual directors failed to maintain sufficient resources, processes, and controls to adequately manage the company’s foreclosure processing business. The complaint seeks disgorgement of profits and benefits and restitution from the individual defendants, an order compelling Citigroup to hold a shareholder vote on various corporate governance issues, as well as equitable and injunctive relief. Complaint.

Plaintiffs Ask Judge Crotty to Reconsider His Denial of Leave to File Amended Complaint in Barclays RMBS Litigation

On February 4, 2011, plaintiffs in In re Barclays Bank PLC Securities Litigation (S.D.N.Y.) filed a motion asking Judge Crotty to reconsider his January 5, 2011 order which rmbss’ claims against defendants without granting leave to amend. Plaintiffs assert claims under Sections 11, 12(a) and 15 of the Securities Act on behalf of a putative class of investors who acquired Barclays’s preferred securities between 2006 and 2008 pursuant or traceable to registration statements and prospectuses that plaintiffs allege did not properly account for or adequately disclose Barclay’s liabilities and risks related to RMBS and other CDOs. Judge Crotty previously granted the defendants’ motion to dismiss the relevant claims on the grounds that plaintiffs failed to adequately allege that the defendants did not honestly believe their estimates of the RMBS and CDO liabilities or that any of the lead plaintiffs had purchased the relevant securities prior to Barclays’s “adequate disclosure” of the risks in August 2008. In their motion to reconsider, plaintiffs seek leave to amend their consolidated complaint and reinstate certain claims by adding allegations that the defendants did not believe their disclosures on the value of the liabilities and adding two new plaintiffs who allegedly purchased the relevant securities prior to the August 2008 disclosures. Motion and Proposed Amended Complaint. Jan. 5 Decision.