trustee

New York Intermediate Appellate Court Holds that Accrual Provision Does Not Save RMBS Trustee’s Time-Barred Putback Claim

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On August 11, 2016, the First Department of the Appellate Division of the Supreme Court of the State of New York affirmed dismissal of an action brought by Deutsche Bank National Trust Company, as RMBS Trustee, against Quicken Loans, Inc. Following the New York Court of Appeals decision in the closely-followed case of ACE Securities Corp., Home Equity Loan Trust, Series 2006-SL2 v. DB Structured Products, Inc. (covered here) – which held that a breach of contract claim in an RMBS putback action accrues on the date the representations and warranties are made – the First Department concluded Deutsche Bank’s action was time-barred, notwithstanding the presence of an accrual provision in the transaction documents that might have otherwise delayed the accrual of putback claims indefinitely. The decision holds that such accrual provisions are unenforceable attempts to extend the statute of limitations. Order.

New York Court Dismisses Repurchase Claims Against UBS as Untimely

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On July 27, 2016, Justice Marcy Friedman of the New York Supreme Court for New York County, in accordance with other recent decisions (covered here and here) dismissed an action against UBS Real Estate Securities, Inc.  The case was initially brought by Federal Housing Finance Agency (“FHFA”), as conservator of an RMBS certificateholder.  It was then pursued by the trustee after the limitations period expired.  Because FHFA lacked standing to bring claims for breaches of loan-level representations and warranties, the Court held that the trustee’s claims do not “relate back” to the date of FHFA’s initial filing for statute of limitations purposes.  The court will permit briefing on the viability of claims for failure to notify the trustee of alleged breaches of representations and warranties.  Decision.

New York Appellate Court Holds Repurchase Demand Analysis Is Not Protected Work Product

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On June 23, 2016, the First Department of the Appellate Division of the Supreme Court of the State of New York decided an appeal in an action brought by Bank of New York Mellon, as RMBS Trustee, against WMC Mortgage and JP Morgan. In its decision, the Court held that originator WMC’s repurchase demand analysis is not protected work product because it was not primarily prepared in anticipation of litigation and was a regular part of the loan originator’s business. The court therefore affirmed the decision of the trial court, Justice Shirley Werner Kornreich, ordering WMC Mortgage to produce the repurchase demand analysis. Order.

RMBS Suit to Proceed Against Morgan Stanley

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On June 16, 2016, Justice Marcy S. Friedman of the Supreme Court of the State of New York largely denied Morgan Stanley’s motion to dismiss a breach of contract action brought by RMBS trustee Wilmington Trust Company. The court dismissed the trustee’s claim for indemnification of attorney’s fees, finding that the contracts did not unmistakably contemplate such indemnification. The court denied without prejudice defendant’s motion to dismiss the trustee’s claim as to non-Morgan Stanley loans in the offering at issue, as the parties did not have the opportunity to address the import of recent RMBS precedent or whether the repurchase demand in this case included any such loans. The court will receive further briefing on the import of a 2015 intermediate appellate court decision, previously covered here, on plaintiff’s claim that the bank improperly failed to notify the trustee of breaches Morgan Stanley discovered. The court denied the remainder of Morgan Stanley’s motion to dismiss. Following her prior decisions (such as her decision in ACE on remand from the Court of Appeals, covered here), Justice Friedman held that the trustee’s claims for breach of contract were timely filed within the statute of limitations, and that its claim for damages was not precluded by the repurchase protocol. Order.

New York Court Orders BlackRock to Seek Discovery from Former Certificateholders and Produce That Information in Suit Against RMBS Trustee

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On June 3, 2016, Judge Sarah Netburn of the U.S. District Court for the Southern District of New York ordered BlackRock, an RMBS certificateholder that has sued the RMBS trustee, HSBC, to identify and serve document subpoenas on the former owners of BlackRock’s RMBS certificates. BlackRock’s lawsuit against HSBC (which we previously discussed here) asserts several causes of action arising out of HSBC’s alleged failure to fulfill its contractual, statutory, and fiduciary obligations as Trustee. HSBC argued in its motion to compel production that the requested documents from the former owners are directly relevant to proving HSBC’s affirmative defenses and showing that BlackRock lacks standing to assert the litigation rights of the prior certificateholders.  The Court agreed, holding that BlackRock cannot assert the litigation rights of the prior certificateholders without assuming the corresponding discovery obligation.  Order.

New York Supreme Court Dismisses ACE Action Re-Asserting Repurchase Claims against DB Structured Products

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On March 29, 2016, Justice Marcy Friedman of the New York Supreme Court rejected the trustee’s attempt to renew previously dismissed claims in ACE Securities v. DB Structured Products, Inc.  As we previously reported, the trustee re-filed this action after the First Department dismissed the prior lawsuit related to the same trust, a dismissal that the Court of Appeals later affirmed.

In granting the motion to dismiss, the court rejected the trustee’s reliance on CPLR 205(a) as grounds for reviving the previously dismissed lawsuit.  The Court held that CPLR 205(a) allows only the same plaintiff that commenced the prior action to re-commence a second action under the terms of that rule.  Because the prior action had been commenced by the certificateholders, not the trustee, the trustee was not the same plaintiff and could not take advantage of CPLR 205(a).  The Court rejected the trustee’s argument that it and the certificateholders were attempting to litigate identical interests, holding that the certificateholders in the prior action did not possess a cause of action to which the trustee succeeded.  The court also considered the defendant’s alternative argument that CPLR 205(a) was not available because the prior lawsuit was untimely.  The prior lawsuit was filed on the six-year anniversary of the allegedly breached representations and warranties, but neither the trustee nor the certificateholders had complied with the contract’s notice and cure “repurchase protocol” at the time of filing, a failing that both the First Department and Court of Appeals relied upon in dismissing the prior case.  The Court held that to the extent the dismissal was based on the non-compliance with the repurchase protocol, it should properly be characterized as a dismissal for failure to comply with a condition precedent, not a dismissal on timeliness grounds.  However, the First Department also held that the trustee’s complaint in the prior lawsuit had been untimely because it did not relate back to the certificateholders’ summons with notice.  Therefore, the trustee’s failure to file a timely complaint in the first lawsuit provided a second basis for why the trustee could not rely on CPLR 205(a) to re-file the previously dismissed lawsuit. Order.