U.S. Bank

Second Circuit Upholds Dismissal of U.S. Bank’s Untimely Breach of Contract and Indemnity Claims

 

On February 6, the Second Circuit affirmed a trial court order dismissing repurchase and indemnification claims brought by the Federal Housing Finance Agency (“FHFA“), acting on behalf of U.S. Bank as Trustee, against GreenPoint Mortgage Funding Inc., predicated on allegations that mortgage loans sold by GreenPoint breached representations and warranties in the relevant loan purchase agreements. READ MORE

U.S. Bank and WMC Settle Four RMBS Lawsuits

On September 22, 2016, RMBS Trustee U.S. Bank National Association (“U.S. Bank”) and loan originator WMC Mortgage LLC (“WMC”) filed a stipulation of dismissal in four RMBS lawsuits in light of a settlement reached between the parties. The details of the settlement are not publicly available.  The settlement resolves three lawsuits initiated by U.S. Bank, alleging that WMC misrepresented the quality of loans it sold in 2006 and 2007 RMBS offerings, as well as a lawsuit brought by WMC against U.S. Bank, seeking a declaratory judgment regarding WMC’s performance under the governing agreements of an RMBS deal.  Two of U.S. Bank’s lawsuits include claims against loan originator Equifirst Corporation, but these claims are not part of the settlement. Stipulation of Dismissal.

New York Court Dismisses Claims against EquiFirst and Barclays as Untimely

On July 25, 2016, Justice Marcy Friedman of the New York Supreme Court dismissed a $619 million suit brought by U.S. Bank in its capacity as Trustee of an RMBS trust against the originator of the loans, Equifirst, Barclays’ now-defunct mortgage originator. The Federal Housing Finance Agency (“FHFA”), as conservator of an RMBS certificateholder, initially filed the summons with notice on February 28, 2013, the six-year anniversary of the securitization’s closing date.  U.S. Bank waited another six months before filing the complaint on October 28, 2013.  U.S. Bank brought claims for breach of contract for Equifirst’s alleged misrepresentations regarding the quality of the underlying mortgage loans, and breach of the implied covenant of good faith and fair dealing arising from an alleged failure to notify contractual counterparties of Equifirst’s alleged breaches.  Relying on a recent intermediate appellate decision and her orders in similar cases, Justice Friedman dismissed those claims holding that FHFA, as a certificateholder, lacked standing to commence the action, and that the Trustee’s complaint, which was filed after the passage of the statute of limitations, did not relate back to FHFA’s summons with notice.  The court granted U.S. Bank leave to replead its failure to notify claims. Order.

Claims Against RMBS Trustee U.S. Bank Partially Dismissed

On February 26, Judge Katherine B. Forrest of the U.S. District Court for the Southern District of New York denied U.S. Bank N.A.’s (“U.S. Bank”) motion to dismiss claims for breach of contract and violation of the Trust Indenture Act (“TIA”) with regard to the 27 trusts that remain before the Court after it previously declined to exercise supplemental jurisdiction over claims arising from an additional 810 trusts.  Orrick covered that decision here. The Court dismissed plaintiffs’ claims for breach of fiduciary duty and extra-contractual duties under the economic loss doctrine, but did not dismiss plaintiffs’ TIA-based claim, holding that the statute provides plaintiffs with a private right of action.  Judge Forrest also held that the Indentures’ no-action clauses have no effect in suits against RMBS trustees, rejecting U.S. Bank’s attempt to dismiss all claims against it on the basis of plaintiffs’ non-compliance with those provisions.  Opinion and Order.

RMBS Investors Sue U.S. Bank for Trust Losses

On August 5, 2015, RMBS investors filed a putative class action against U.S. Bank, N.A. in the Supreme Court for the State of New York.  The investors assert that U.S. Bank, as trustee for the MASTR Adjustable Rate Mortgage Trust 2006-OA2, harmed certificateholders in failing to timely request repurchase of defective mortgage loans by the sponsor, UBS Real Estate Securities.  The investors cite recent decisions, previously covered here and here, out of the New York federal court dismissing the trustee’s claims against U.B.S. as time-barred as to certain loans.  The complaint includes claims for breach of fiduciary duty, breach of duty to avoid conflicts of interest, breach of the implied covenant of good faith and fair dealing, and violation of New York’s Streit Act.  Complaint.

U.S. Bank Sues Countrywide for $178M in RMBS Losses

On June 25, 2015, U.S. Bank, in its capacity as Trustee for the LXS 2007-7N Trust, filed a summons with notice in New York Supreme Court against Countrywide Home Loans (“CHL”), Countrywide Home Loans Servicing LP (“Countrywide Servicing”), and others, seeking to recover $178 million in losses over alleged breaches of representations and warranties made about the sold to the Trust.  U.S. Bank alleges that, despite receiving repurchase demands in connection with allegedly breaching loans, CHL failed to cure or repurchase the loans, or indemnify the Trust for the resultant losses.  U.S. Bank also claims that Countrywide Servicing failed to notify the Trustee when it discovered breaches, and failed to force CHL to repurchase or substitute such breaching loans.  U.S. Bank seeks specific performance, declaratory relief, damages, indemnification, and prejudgment interest.  Summons with Notice.

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.

Phoenix Light Sues Five RMBS Trustees Over $2.4 Billion in RMBS

On December 23 and 24, Phoenix Light SF Limited and other RMBS certificateholders filed suit against HSBC, Wells Fargo, Deutsche Bank, Bank of New York Mellon, U.S. Bank, and Bank of America in the United States District Court for the Southern District of New York regarding $2.4 billion in RMBS. The complaints assert causes of action under the Trust Indenture Act and a provision of the New York Real Property Law known as the Streit Act, as well as under state law for breach of contract, breach of fiduciary duty, negligence, gross negligence, and negligent misrepresentation. Plaintiffs allege that the trustees breached their duties under the governing trust agreements by 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. Plaintiffs seek compensatory damages and unspecified equitable relief.  HSBC ComplaintWells Fargo ComplaintDeutsche Bank ComplaintBNY Mellon ComplaintU.S. Bank and Bank of America Complaint.

U.S. Bank Reaches $6 Million Settlement of Claims for Breach of RMBS Trustee Duties

On December 17, the parties in Oklahoma Police Pension and Retirement System v. U.S. Bank, N.A., No. 11-cv-8066 (S.D.N.Y.) asked the court to approve a $6 million settlement of class action claims asserted against U.S. Bank in its capacity as trustee for five RMBS trusts sponsored by Bear Stearns. The class consisted of 1,800 investors who had bought certificates in the trusts. Claims related to nine other trusts had been dismissed earlier in the litigation and were not included in the settlement. The complaint included claims for breach of contract, breach of the covenant of good faith and fair dealing, and violation of the federal Trust Indenture Act.  Motion for ApprovalSettlement Agreement.

Court Dismisses U.S. Bank’s RMBS Repurchase Claims Against Citigroup as Too Speculative

 On November 14, Judge George B. Daniels of the United States District Court for the Southern District of New York dismissed several of U.S. Bank’s repurchase claims against Citigroup Global Markets Realty Corp.  U.S. Bank alleged that Citigroup breached representations and warranties with respect to loans underlying $832 million of RMBS.  The Court dismissed the trustee’s claim for breach of contract as to loans for which the trustee had not requested repurchase, holding that U.S. Bank did not sufficiently allege that Citigroup actually discovered any breaches of representations and warranties as to those loans.  The Court also dismissed the trustee’s claim for anticipatory breach of contract based on repurchase requests sent to Citigroup the same day as the complaint was filed.  In addition, Judge Daniels dismissed claims against servicer CitiMortgage, Inc., holding the trustee’s allegations suggesting CitiMortgage should have discovered breaches of representations and warranties in the course of servicing were conclusory and speculative.  The case remains pending against Citigroup as to claims for breach of contract with respect to the failure to repurchase 466 loans identified in pre-suit repurchase demands.  Order.