SDNY

SDNY Denies Class Certification in Royal Park Action Against Trustee Bank of New York

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On February 15, Judge Gregory H. Woods in the United States District Court for the Southern District of New York denied certificateholder Royal Park Investments SA/NV’s (“Royal Park“) renewed motion for class certification in its lawsuit against RMBS trustee Bank of New York Mellon. This was the second time Judge Woods denied Royal Park’s motion for class certification in this case, and it is consistent with other judges’ rulings on Royal Park’s class certification motions in its lawsuits against trustees. Judge Woods found that Royal Park failed to demonstrate that questions of law or fact common to class members predominated over individualized questions. Judge Woods held that liability must be determined individually on a loan-by-loan and trust-by-trust basis, and that none of the inquiries required to prove liability were susceptible to simple, class-wide proof. Further, each putative class member needed to demonstrate that it holds litigation rights, which requires the court to undertake a difficult, fact-dependent analysis of individualized legal issues. In addition, the Court found that each putative class member would present a different statute of limitations defense, and these defenses would apply different time periods under New York law because the trusts were non-residents. Finally, the Court held that the damage calculation in this case required hundreds of fact intensive inquiries that could not be answered on a class-wide basis.

SDNY Court Appoints Lead Master to Review 9,300 UBS Loans for Material Breach Following UBS Putback Trial

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On September 6, 2016, following a 3-week long bench trial in May, U.S. District Judge P. Kevin Castel of the Southern District of New York held that he will appoint a Lead Master to determine whether there are “material breaches” in 9,300 loans at issue in putback litigation against UBS. In its 239-page post-trial decision, after addressing a number of issues and discussing 20 loans, the Court appointed a Lead Master to examine each loan on an individual basis and prepare recommended findings and conclusions on liability.

The Court outlined Plaintiff’s burden of proof for breach of underwriting guidelines, holding that the Plaintiff must demonstrate it is more likely than not that the loan was not originated in compliance with the relevant underwriting guidelines, unless an exception was actually exercised, in a reasonable manner, at the time of origination. Plaintiffs will then be required to prove a breach has a “material and adverse” effect at the time UBS’s repurchase obligation was triggered. The Court held this can be shown: (1) by proving an increased risk of loss to certificateholders; (2) with evidence that a breach resulted in altered loan terms; or (3) through a showing of layered risk and/or the cumulative effect of multiple breaches. The Court held that discovery of a breach cannot be based on constructive knowledge. Instead, Plaintiffs must show actual knowledge, which may be established by circumstantial evidence, or willful blindness. Memorandum and Court Order.

SDNY Rules Rating Agencies Are Not Underwriters

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On January 12, 2011, Federal District Judge Harold Baer, Jr. of the Southern District of New York (“SDNY”) dismissed all claims against several rating agencies (Moody’s, Fitch, S&P) in an RMBS securities class action. The putative class consists of all purchasers or acquirers of RMBS registered or traceable to a particular registration statement filed in either 2004 or 2005. Plaintiffs alleged that the rating agencies provided ratings based on insufficient information and faulty assumptions concerning the underlying mortgages and are liable as “underwriters” under Section 11 of the Securities Act. The court rejected this argument, finding that precedent clearly defined an underwriter as a party that serves as a conduit between the issuer and the public, and that the Rating Agencies’ significant role in the ability of Goldman Sachs to market the certificates at issue did not bring them within that definition. The Court also dismissed some, but not all, claims against Goldman Sachs. Decision.

SDNY Dismisses Securities Class Action Against The Royal Bank of Scotland Group

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On January 11, 2011, Federal District Judge Deborah Batts of the Southern District of New York dismissed several claims in a securities class action against the Royal Bank of Scotland Group (“RBS”). The dismissed putative class claims were brought on behalf of purchasers and acquirers of RBS ordinary shares, which trade outside the U.S., and allege that RBS made false and misleading statements when it failed to adequately disclose that it had accumulated billions of pounds of subprime, Alt-A, and other high-risk RMBS-related assets. The court dismissed the claims, relying on the 2010 Supreme Court decision in Morrison v. National Australia Bank Ltd., which held that U.S. federal securities laws do not apply to purchases of foreign securities outside the U.S. The court declined plaintiffs’ invitation to apply U.S. law to the RBS ordinary shares on the basis that other RBS securities (ADRs) are listed and trade on a U.S. Exchange. Decision.