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.
U.S. District Court for the Southern District of New York
Federal Court Permits BlackRock’s Breach of Contract Claims to Proceed against BNY Mellon
On March 28, Judge George Daniels of the U.S. District Court for the Southern District of New York granted in part and denied in part Bank of New York Mellon’s motion to dismiss an action brought by BlackRock. BlackRock, as a holder in numerous trusts for which BNY Mellon serves as trustee, alleges that BNY Mellon failed to (i) provide notice of breaches of seller representations and warranties, (ii) enforce seller repurchase obligations, (iii) provide notice of events of default, and (iv) act prudently upon learning of events of default. The court exercised supplemental jurisdiction over state law claims concerning 243 trusts, holding that the claims arise out of the same operative facts as those of the federal claims concerning 17 other trusts. The court permitted BlackRock’s breach of contract claims to proceed, but dismissed fiduciary duty claims as duplicative of the contract claims. Judge Daniels also dismissed Trust Indenture Act claims in light of the Second Circuit’s holding that the TIA does not apply to the trusts like those at issue, and dismissed negligence and conflict of interest claims for failure to adequately state a claim. Decision.
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.
Motion to Dismiss Action Against RMBS Trustee Denied
On March 31, 2015, Judge Shira Scheindlin of the U.S. District Court for the Southern District of New York denied HSBC Bank USA, National Association’s (“HSBC”) motion to dismiss an action brought by a consortium of investors in RMBS for lack of subject matter jurisdiction. The plaintiffs’ Complaint alleges, inter alia, that HSBC failed to discharge its duties as Trustee for 271 RMBS Trusts in violation of the Trustee Indenture Act (“TIA”) and state common law. Because the TIA governs only 27 of the 271 Trusts at issue, the plaintiffs invoked supplemental jurisdiction as the basis for the court to hear the claims as to the remaining 244 Trusts. Judge Scheindlin denied HSBC’s motion, holding that the plaintiffs’ claims all arise from the “same nucleus of operative fact” because the relevant governing agreements all contain substantially similar contract provisions and impose similar duties on HSBC in its capacity as Trustee. Judge Scheindlin added that judicial economy would be served by retaining supplemental jurisdiction as proof of both the TIA and non-TIA claims would require depositions of many of the same witnesses. Order.
MBS Investor Class Partially Certified Against J.P. Morgan
On September 30, Judge Paul Oetken of the U.S. District Court for the Southern District of New York partially certified a class of MBS investors under Rule 23(b) in Fort Worth Employees’ Retirement Fund v. J.P. Morgan Chase & Company. The plaintiffs allege that J.P. Morgan made misleading statements in the offering documents underlying approximately $10 billion worth of MBS certificates. Judge Oetken certified the class for liability purposes only, but not damages. Judge Oetken held that while plaintiffs had met the necessary elements for liability purposes, they had not come forth with a damages model that was precise enough to permit the court to permit the calculation of damages on a class wide basis. The court’s order did not preclude certification of the class for damages purposes in the future, if plaintiffs develop a model sufficient to demonstrate damages across the class. Order.
Federal Court Orders Bayerische Landesbank RMBS Lawsuits Back to State Court
On July 16, Judge Lewis A. Kaplan of U.S. District Court for the Southern District of New York remanded suits brought by Bayerische Landesbank against Bear Stearns and Merrill Lynch to the Supreme Court of the State of New York, where they were originally filed. The lawsuits allege that Defendants knowingly made misrepresentations in RMBS offering materials concerning the underwriting standards used in connection with the underlying mortgage loans. Defendants sought removal to federal court on the ground that the cases were related to bankruptcy proceedings of the originators of some of the underlying mortgages. Judge Kaplan’s remand order indicated that a further written order may be forthcoming. Order. Notice of Removal.
Court Denies Morgan Stanley’s Motion to Dismiss RMBS Class Action
On July 16, Judge Laura Swain of U.S. District Court for the Southern District of New York denied Morgan Stanley’s motion to dismiss a class action suit that alleges misrepresentations and omissions in the offering documents for numerous mortgage-backed securities. In its motion, Morgan Stanley argued that the claims were time-barred under the one-year statute of limitations for violations of Section 11 and Section 12(a)(2) of the 1933 Securities Act because, among other reasons, numerous news reports had been published more than one year before the complaint was filed that put Plaintiffs on inquiry notice of their claims. Judge Swain held that the statute of limitations begins running only when a plaintiff could have pled claims with sufficient particularity to state a facially plausible claim. In this context, she held that the earliest that could have occurred was when the securities at issue were downgraded to below investment-grade. She further held that while the news reports cited by Morgan Stanley painted a vivid picture of a distressed MBS industry, none of the reports referred to the entities involved in the origination or securitization of the loans backing Plaintiffs’ investments and therefore they did not provide Plaintiffs with sufficient information to state a facially plausible claim. Order.
Federal Court Dismisses Claims Against Bank of New York Mellon
On April 3, 2012, Judge William H. Pauley of the U.S. District Court for the Southern District of New York dismissed with prejudice nearly all claims against Bank of New York Mellon, as trustee, by four plaintiff pension funds in a putative class action relating to 530 Countrywide RMBS trusts worth $424 billion. Plaintiffs allege that Bank of New York Mellon violated the Trust Indenture Act and breached its contractual and fiduciary duties by failing to remedy the allegedly inadequate servicing of the mortgages underlying the trusts. The court found the plaintiffs lacked standing to bring claims under the Trustee Indenture Act relating to trusts in which they did not actually invest. As a result of the decision, only 26 trusts worth $30 billion remain in the litigation. Decision.
Federal Court Dismisses Claims Against Bear Stearns Based on RMBS Credit Ratings
On March 30, 2012, Judge Laura Taylor Swain of the U.S. District Court for the Southern District of New York dismissed claims based on credit ratings brought by several retirement and pension funds against Bear Stearns & Co., Inc. and related affiliates in connection with the sale of RMBS pass-through certificates. Plaintiff brought claims under Section 11, 12(a)(2) and 15 of the Securities Act of 1933. The court found that plaintiffs failed to plead that the rating agencies disbelieved their ratings, but granted plaintiffs leave to amend to allege Bear Stearns was aware of the inaccuracy of the credit ratings. The court, however, declined to dismiss claims that Bear Stearns made misrepresentations concerning the quality of the underlying loans in its offering documents. It also rejected Bear Stearns’ argument that plaintiffs lacked standing to sue on tranches they did not purchase. Decision.
Allstate RMBS Suit Against Credit Suisse Remanded to New York State Court
Judge Buchwald of the U.S. District Court for the Southern District of New York issued an order on October 19, 2011, remanding a suit brought by Allstate against Credit Suisse and related entities arising out of alleged misrepresentations made in connection with over $200 million of RMBS allegedly purchased by Allstate. Defendants had removed the action on “related to bankruptcy” grounds on the basis that three of the originators of loans underlying Allstate’s certificates, against whom Defendants had potential claims for indemnification, had declared bankruptcy. The court found that because Defendants had not asserted any of the indemnification claims against the bankrupt originators, and because the time to do so in the relevant bankruptcy proceedings had passed, that Defendants had not shown a sufficient relation to those bankruptcy proceedings to justify the exercise of federal jurisdiction. The court further found that even if Defendants had shown that related to bankruptcy grounds existed, the court still would be required to remand the action on mandatory abstention grounds. Decision.