U.S. Bank National Association

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

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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.

Monoline Insurer Sues Trustee Over Settlement Figure in RMBS Repurchase Action

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On June 8, 2018, monoline insurer Ambac Assurance Corporation (“Ambac“) filed a complaint in the United States District Court for the Southern District of New York against U.S. Bank National Association (“U.S. Bank“), trustee of the Harborview Mortgage Loan Trust 2005-10 (the “Trust“). The complaint alleges that U.S. Bank breached certain contractual and common law duties when it agreed to a proposed $94 million settlement of an ongoing RMBS repurchase action in New York state court against Bank of America, N.A. and certain affiliates, as successors to Countrywide Home Loans, Inc. (the “Countrywide Action“). Among other things, Ambac alleges that U.S. Bank was required to observe heightened duties of care when an Event of Default occurred under the governing PSA, and that U.S. Bank breached those duties when it agreed to settle the Countrywide Action for approximately 28% of the amount that its expert opined it was entitled to recover. Ambac further alleges that U.S. Bank breached the PSA by incorrectly accounting for recoveries received by the Trust. The complaint asserts two claims for declaratory judgments, two claims for breach of contract, and one claim for breach of fiduciary duty.  Complaint.

New York Supreme Court Grants in Part and Denies in Part Cross Motions for Summary Judgment in RMBS Action

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On May 16, 2018, Justice Shirley W. Kornreich of the New York Supreme Court granted in part and denied in part the parties’ summary judgment motions in Merrill Lynch Mortgage Investors Trust Series 2006-RM4 v. Merrill Lynch Mortgage Lending, Inc. Defendants Merrill Lynch Mortgage Lending, Inc. (“Merrill“) and Bank of America National Association (“BANA“) and Plaintiff-Trustee U.S. Bank National Association (“Trustee“) cross-moved for partial summary judgment regarding the scope and enforceability of an allocation agreement between Merrill and BANA and certain provisions therein about the release of Merrill’s contractual liability to the Trustee (the “Release”). Justice Kornreich granted summary judgment for Defendants with respect to the Release language being unambiguous but denied summary judgment as to its enforceability. Justice Kornreich concluded that material questions of fact exist as to whether Merrill’s and BANA’s negotiation and execution of the Release was a true arm’s length transaction and whether the Release was unconscionable. Justice Kornreich also denied the Trustee’s motion for a ruling that Merrill provided a backstop to originator ResMAE Mortgage Corporation’s putback liability. The Court granted summary judgment to the Trustee regarding the meaning of certain sections of the mortgage loan purchase agreement, the existence of warranty breaches on certain loans, and Defendants’ causation defenses. In addition, Justice Kornreich granted the Trustee’s motion for leave to amend to add a “breach of trust” cause of action against BANA. Decision & Order

New York Supreme Court Holds RMBS Claims Are Timely, But Accrual Provision Unenforceable

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On March 3, 2015, Justice Marcy S. Friedman of the New York Supreme Court granted in part and dismissed in part Defendant Greenpoint Mortgage Funding, Inc.’s Motion to Dismiss an action in which it was said to have misrepresented the quality of loans underlying an RMBS transaction.  Plaintiff-Trustee, U.S. Bank National Association, argued that the case was timely under a provision of the governing Mortgage Loan Sale Agreement providing that no claim accrues for breach of a repurchase obligation until the purchaser discovers a breaching loan (or is so notified), the seller fails to cure such breach, and the purchaser makes a demand for cure.  The court rejected the plaintiff’s reliance on this accrual provision, citing earlier decisions holding that New York law precludes the extension of an applicable statute of limitations by contract.  The court nonetheless concluded that the action was timely, finding that the plaintiff had pled sufficient facts to state a claim that Greenpoint was aware of breaches within the limitations period.  Additionally, Justice Friedman granted the motion to dismiss the plaintiff’s claims for (1) reimbursement of attorney’s fees, as these were not encompassed by the MLSA’s indemnification provisions, (2) all claims that sought relief beyond that permitted under the contract’s sole remedy provision, and (3) claims for breach of the implied covenant of good faith and fair dealing, which the court found to be duplicative of the underlying contract claim.  Order.

 

NCUA Sues U.S. Bank and Bank of America for Allegedly Failing to Comply with RMBS Trustee Duties

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On December 16, National Credit Union Administration filed a lawsuit in the United States District Court for the Southern District of New York against U.S. Bank N.A. and Bank of America N.A., in their capacity as trustees for 99 RMBS trusts. NCUA filed the suit as liquidating agent for five failed credit unions collectively alleged to have purchased certificates in the trusts at issue. NCUA alleges that U.S. Bank and Bank of America breached their duties under the governing trust agreements by failing to properly review and monitor the loans backing the RMBS, failing to notify the investors of deficiencies in the loans, failing to take action to address those alleged deficiencies, and failing to require the repurchase of defective loans. The complaint asserts causes of action under the Trust Indenture Act and the Streit Act, a New York statute that governs administration of mortgage trusts, and seeks compensatory damages and unspecified equitable relief.  Complaint.

U.S. Bank Sues Citigroup in Connection with $528 Million of RMBS

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On December 22 and 23, U.S. Bank National Association, as trustee for three RMBS trusts, filed three separate summonses with notice in the Supreme Court of the State of New York. U.S. Bank alleges that Citigroup misrepresented the quality of mortgage loans underlying $528 million in RMBS, and that it breached its duties as servicer by failing to notify the trustee of representation and warranty breaches that it discovered. The trustee seeks compensatory and rescissory damages, along with repurchase of loans not complying with the applicable representations and warranties.  Summons with Notice (2007-AMC2).  Summons with Notice (2007-AHL2).  Summons with Notice (2007-AR7).

RMBS Claims Against U.S. Bank National Association Dismissed in Part

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On May 31, Judge John G. Koeltl of the United States District Court for the Southern District of New York granted in part and denied in part a motion to dismiss claims brought against U.S. Bank National Association (U.S. Bank) by the Oklahoma Police Pension and Retirement System on behalf of a putative class of investors in Bear Stearns residential mortgage-backed securities.  Plaintiff alleges that U.S. Bank, as trustee for the RMBS, owed it and the putative class duties under the governing agreements and the Trust Indenture Act of 1939 (TIA).  Judge Koeltl held that the certificates at issue were not covered by the TIA because the contracting parties structured the transactions so as to exempt them from the TIA, as allowed by the statute.  The court held Plaintiff had, however, adequately alleged standing and had stated a claim for breach of contract based on alleged failures to ensure adequate title and documentation of the loans, to enforce the repurchase protocol and to provide notice of default by the servicer.  The court allowed these claims for breach of contract to proceed, but dismissed duplicative claims for breach of the covenant of good faith and fair dealing.  Opinion.