Opinion
Index No. 654436/2015 Index No. 654438/2015 Index. No. 654439/2015 Index No. 654440/2015 Index. No. 654442/2015 Index No. 654443/2015
01-27-2021
IKB INTERNATIONAL, S.A., in Liquidation and IKB DEUTSCHE INDUSTRIEBANK A.G., Plaintiffs, v. LASALLE BANK N.A. as Trustee (and any predecessors or successors thereto); BANK OF AMERICA, N.A., as successor by merger to LASALLE BANK N.A. as Trustee (and any predecessors or successors thereto), Defendants, and ACCREDITED MORTGAGE LOAN TRUST 2005-3; BEAR STEARNS ASSET BACKED SECURITIES I TRUST 2007-HE4; BEAR STEARNS ASSET BACKED SECURITIES I TRUST 2007-HE5; C-BASS TRUST 2006-CB9; GSAMP TRUST 2006-HE7; MERRILL LYNCH MORTGAGE INVESTORS TRUST SERIES 2005-SL3; and MORGAN STANLEY MORTGAGE LOAN TRUST 2007-3XS, Nominal Defendants. IKB INTERNATIONAL, S.A. in Liquidation and IKB DEUTSCHE INDUSTRIEBANK A.G., Plaintiffs, v. THE BANK OF NEW YORK, as Trustee (and any predecessors or successors thereto); BNY WESTERN TRUST COMPANY, as Trustee (and any predecessors or successors thereto); THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee (and any predecessors or successors thereto); THE BANK OF NEW YORK MELLON CORPORATION, N.A., as Trustee (and any predecessors or successors thereto); THE BANK OF NEW YORK MELLON CORPORATION, N.A., as Successor by Merger to THE BANK OF NEW YORK, as Trustee (and any predecessors or successors thereto); THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Successor by Merger to BNY WESTERN TRUSTE COMPANY, as Trustee (and any predecessors or successors thereto); THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Successor by Merger to THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee (and any predecessors or successors thereto), Defendants, and CENTEX HOME EQUITY LOAN TRUST 2004-B; CWABS TRUST 2005-HYB9; CHL MORTGAGE PASS-THROUGH TRUST 2006-HYB1; CWABS INC. ASSET BACKED CERTIFICATES SERIES 2004-4; CWABS INC. ASSET BACKED CERTIFICATES SERIES 2005-13; CWABS INC. ASSET BACKED CERTIFICATES SERIES 2005-1;, CWABS INC. ASSET BACKED CERTIFICATES SERIES 2005-15 CWABS ASSET BACKED CERTIFICATES TRUST 2005-AB4; CWABS ASSET-BACKED CERTIFICATES TRUST 2005-BC5; CWABS INC. ASSET-BACKED CERTIFICATES TRUST 2005-IM1; CWABS ASSET-BACKED CERTIFICATES TRUST 2005-IM3; CWABS ASSET-BACKED CERTIFICATES TRUST 2006-1; CWABS ASSET-BACKED CERTIFICATES TRUST 2006-10; CWABS ASSET-BACKED CERTIFICATES TRUST 2006-13; CWABS ASSET-BACKED CERTIFICATES TRUST 2006-18; CWABS ASSET-BACKED CERTIFICATES TRUST 2006-19; CWABS ASSET-BACKED CERTIFICATES TRUST 2006-3; CWABS ASSET-BACKED CERTIFICATES TRUST 2006-5; CWABS ASSET-BACKED CERTIFICATES TRUST 2006-SPS1; CWABS ASSET-BACKED CERTIFICATES TRUST 2006-SPS2; CWABS ASSET-BACKED CERTIFICATES TRUST 2007-4; HOME EQUITY LOAN TRUST 2007-FRE1; NATIONSTAR HOME EQUITY LOAN TRUST 2007-A; NATIONSTAR HOME EQUITY LOAN TRUST 2007-B; NATIONSTAR HOME EQUITY LOAN TRUST 2007-C; POPULAR ABS MORTGAGE PASS-THROUGH TRUST 2006-E; RASC SERIES 2001-KS2 TRUST, Nominal Defendants. IKB INTERNATIONAL, S.A., in Liquidation and IKB DEUTSCHE INDUSTRIEBANK A.G., Plaintiffs, v. DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee (and any predecessors or successors thereto); DEUTSCHE BANK TRUST COMPANY AMERICAS, as Trustee (and any predecessors or successors thereto) Defendants, and ACCREDITED MORTGAGE LOAN TRUST 2004-3; ACCREDITED MORTGAGE LOAN TRUST 2005-4; ACCREDITED MORTGAGE LOAN TRUST 2006-1; ACCREDITED MORTGAGE LOAN TRUST 2006-2; ARGENT SECURITIES INC. ASSET-BACKED PASS-THROUGH CERTIFICATES, SERIES 2005-W2; CITIGROUP MORTGAGE LOAN TRUST, SERIES 2005-OPT3; EQUIFIRST MORTGAGE LOAN TRUST 2004-2; FIRST FRANKLIN MORTGAGE LOAN TRUST 2005-FFH3; FIRST FRANKLIN MORTGAGE LOAN TRUST 2006-FF8; GSAMP TRUST 2006-HE1; HSI ASSET SECURITIZATION CORP. TRUST 2006-OPT2; IMPAC SECURED ASSETS CORP MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2004-3; IMPAC CMP TRUST SERIES 2004-5; IMPAC CMB TRUST SERIES 2005-5; IMPAC CMB TRUST SERIES 2005-8; IMPAC SECURED ASSETS CORP., MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-1; IMPAC SECURED ASSETS CORP., MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-2; INDYMAC INDX MORTGAGE LOAN TRUST 2005-AR21; INDYMAC INDX MORTGAGE LOAN TRUST 2006-AR9; J.P. MORGAN MORTGAGE ACQUISITION TRUST 2007-CH1; J.P. MORGAN MORTGAGE ACQUISITION TRUST 2007-HE1; LONG BEACH MORTGAGE LOAN TRUST 2004-2; MORGAN STANLEY ABS CAPITAL I INC. TRUST 2005-HE3; MORGAN STANLEY ABS CAPITAL I INC. TRUST 2005-HE6; MORGAN STANLEY ABS CAPITAL I INC. TRUST 2005-HE7; MORGAN STANLEY ABS CAPITAL I INC. TRUST 2005-NC1; MORGAN STANLEY CAPITAL I INC. TRUST 2006-NC2; MORGAN STANLEY ABS CAPITAL I INC. TRUST 2007-HE5; MORGAN STANLEY HOME EQUITY LOAN TRUST 2006-1; MORGAN STANLEY HOME EQUITY LOAN TRUST 2006-3; NEW CENTURY HOME EQUITY LOAN TRUST, SERIES 2005-C; NEW CENTURY HOME EQUITY LOAN TRUST SERIES 2005-D; POPULAR ABS MORTGAGE PASS-THROUGH TRUST 2007-A; SAXON ASSET SECURITIES TRUST 2006-3; SAXON ASSET SECURITIES TRUST 2007-2; SOUNDVIEW HOME LOAN TRUST 2006-EQ1; WAMU SERIES 2007-HE1 TRUST, Nominal Defendants. IKB INTERNATIONAL, S.A., in Liquidation and IKB DEUTSCHE INDUSTRIEBANK A.G., Plaintiffs, v. HSBC BANK USA, N.A., as Trustee (and any predecessors or successors thereto), Defendant, and ACE SECURITIES CORP. HOME EQUITY LOAN TRUST, SERIES 2006-OP2; GSAA HOME EQUITY TRUST 2005-15; NOMURA HOME EQUITY LOAN TRUST, SERIES 2005-HE1; NOMURA HOME EQUITY LOAN, INC., HOME EQUITY LOAN TRUST, SERIES 2006-WF1; RENAISSANCE HOME EQUITY LOAN TRUST 2004-4; RENAISSANCE HOME EQUITY LOAN TRUST 2005-1; RENAISSANCE HOME EQUITY LOAN TRUST 2005-4; RENAISSANCE HOME EQUITY LOAN TRUST 2006-1; RENAISSANCE HOME EQUITY LOAN TRUST 2006-2; RENAISSANCE HOME EQUITY LOAN TRUST 2006-3; RENAISSANCE HOME EQUITY LOAN TRUST 2006-4; RENAISSANCE HOME EQUITY LOAN TRUST 2007-1; RENAISSANCE HOME EQUITY LOAN TRUST 2007-2; WELLS FARGO HOME EQUITY ASSET-BACKED SECURITIES 2005-2 TRUST; WELLS FARGO HOME EQUITY ASSET-BACKED SECURITIES 2006-1 TRUST, Nominal Defendants. IKB INTERNATIONAL, S.A., in Liquidation and IKB DEUTSCHE INDUSTRIEBANK A.G., Plaintiffs, v. U.S. BANK, N.A., as Trustee (and any predecessors or successors thereto); U.S. BANK TRUST N.A., as Trustee (and any predecessors or successors thereto), Defendants, and ASSET BACKED SECURITIES CORP. HOME EQUITY LOAN TRUST, SERIES OOMC 2006-HE5; ACCREDITED MORTGAGE LOAN TRUST 2004-3; ACCREDITED MORTGAGE LOAN TRUST 2005-3; ACCREDITED MORTGAGE LOAN TRUST 2005-4; ACCREDITED MORTGAGE LOAN TRUST 2006-1; ACCREDITED MORTGAGE LOAN TRUST 2006-2; BAYVIEW FINANCIAL MORTGAGE PASS-THROUGH TRUST 2006-A; BEAR STEARNS ASSET BACKED SECURITIES I TRUST 2005-AC9; BEAR STEARNS ASSET BACKED SECURITIES I TRUST 2007-HE4; BEAR STEARNS ASSET BACKED SECURITIES I TRUST 2007-HE5; BEAR STEARNS ARM TRUST 2005-10; BEAR STEARNS ARM TRUST 2005-12; C-BASS 2006-CB6 TRUST; C-BASS 2006-CB8 TRUST; C-BASS TRUST 2006-CB9; C-BASS 2007-CB1 TRUST; CHASEFLEX TRUST SERIES 2006-2; CITIGROUP MORTGAGE LOAN TRUST 2006-WFHE1; CITIGROUP MORTGAGE LOAN TRUST 2006-WFHE3; CITIGROUP MORTGAGE LOAN TRUST 2006-WFHE4; CITIGROUP MORTGAGE LOAN TRUST 2007-AHL1; CITIGROUP MORTGAGE LOAN TRUST 2007-AMC4; CITIGROUP MORTGAGE LOAN TRUST 2007-WFHE1; CITIGROUP MORTGAGE LOAN TRUST 2007-WFHE2; CITICORP RESIDENTIAL MORTGAGE TRUST SERIES 2007-2; CSAB MORTGAGE-BACKED TRUST 2006-3; CSAB MORTGAGE-BACKED TRUST 2006-4; CSMC MORTGAGE BACKED TRUST SERIES 2007-1; FIRST FRANKLIN MORTGAGE LOAN TRUST, SERIES 2005-FF7; FIRST FRANKLIN MORTGAGE LOAN TRUST, SERIES 2005-FFH2; GSAMP TRUST 2006-HE6; GSAMP TRUST 2006-HE7; HOME EQUITY ASSET TRUST 2005-5; HOME EQUITY ASSET TRUST 2005-8; HOME EQUITY ASSET TRUST 2005-9; HOME EQUITY ASSET TRUST 2006-1; HOME EQUITY ASSET TRUST 2006-2; HOME EQUITY ASSET TRUST 2006-4; HOME EQUITY MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-4; J.P. MORGAN ALTERNATIVE LOAN TRUST 2006-S4; J.P. MORGAN MORTGAGE ACQUISITION CORP 2005-OPT2; J.P. MORGAN MORTGAGE ACQUISITION TRUST 2006-CW1; J.P. MORGAN MORTGAGE ACQUISITION TRUST 2006-CW2; J.P. MORGAN MORTGAGE ACQUISITION CORP 2006-FRE2; MERRILL LYNCH MORTGAGE INVESTORS TRUST SERIES 2005-SL3; MORGAN STANLEY MORTGAGE LOAN TRUST 2007-3XS; NEW CENTURY ALTERNATIVE MORTGAGE LOAN TRUST 2006-ALT2; RAMP SERIES 2005-EFC2 TRUST; RAMP SERIES 2005-EFC5 TRUST; RAMP SERIES 2005-EFC6 TRUST; RAMP SERIES 2006-EFC2 TRUST; RASC SERIES 2005-AHL2 TRUST; RASC SERIES 2005-AHL3 TRUST; RASC SERIES 2005-EMX3 TRUST; RASC SERIES 2005 EMX4 TRUST; RASC SERIES 2005-KS11 TRUST; RASC SERIES 2005-KS12 TRUST; RASC SERIES 2005-KS9 TRUST; RASC SERIES 2006-EMX2 TRUST; RASC SERIES 2006-EMX3 TRUST; RASC SERIES 2006-EMX4 TRUST; RASC SERIES 2006-EMX7 TRUST; RASC SERIES 2006-EMX9 TRUST; RASC SERIES 2006-KS1 TRUST; RASC SERIES 2006-KS2 TRUST; STRUCTURED ADJUSTABLE RATE MORTGAGE LOAN TRUST SERIES 2006-5; SASCO MORTGAGE LOAN TRUST SERIES 2005-GEL1; STRUCTURED ASSET SECURITIES CORP 2005-WF4; STRUCTURED ASSET SECURITIES CORP MORTGAGE LOAN TRUST 2006-EQ1; STRUCTURED ASSET SECURITIES CORPORATION MORTGAGE LOAN TRUST 2006-WF2; STRUCTURED ASSET SECURITIES CORPORATION MORTGAGE LOAN TRUST 2006-WF3, Nominal Defendants. IKB INTERNATIONAL, S.A. in Liquidation and IKB DEUTSCHE INDUSTRIEBANK A.G., Plaintiffs, v. WELLS FARGO BANK, N.A., as Trustee (and any predecessors and successors thereto); WELLS FARGO BANK MINNESOTA, N.A., as Trustee (and any predecessors and successors thereto); WELLS FARGO BANK, N.A., as Successor by Merger to WELLS FARGO BANK MINNESOTA, N.A. as Trustee (and any predecessors or successors thereto), Defendants, and ABFC 2006-OPT1 TRUST; ABFC 2006-OPT3 TRUST; CARRINGTON MORTGAGE LOAN TRUST, SERIES 2006-NC5; CARRINGTON MORTGAGE LOAN TRUST, SERIES 2006-OPT1; CARRINGTON MORTGAGE LOAN TRUST, SERIES 2006-RFC1; CITIGROUP MORTGAGE LOAN TRUST, SERIES 2005-OPT4; FIRST FRANKLIN MORTGAGE LOAN TRUST 2004-FF6; IMPAC CMB TRUST SERIES 2005-6; MORGAN STANLEY ABS CAPITAL I INC. TRUST 2004-OP1; MORGAN STANLEY ABS CAPITAL I INC. TRUST 2005-HE3; MORGAN STANLEY ABS CAPITAL I INC. TRUST 2005-WMC6; MORGAN STANLEY ABS CAPITAL I INC. TRUST 2007-HE5; OPTION ONE MORTGAGE LOAN TRUST 2005-3; OPTION ONE MORTGAGE LOAN TRUST 2005-4; OPTION ONE MORTGAGE LOAN TRUST 2005-5; OPTION ONE MORTGAGE LOAN TRUST 2007-6; SECURITIZED ASSET BACKED RECEIVABLES LLC TRUST 2006-OP1; STRUCTURED ASSET SECURITIES CORPORATION TRUST PASS-THROUGH CERTIFICATES, SERIES 2002-AL1; SOUNDVIEW HOME LOAN TRUST 2007-OPT3, Nominal Defendant.
NYSCEF DOC. NO. 204 DECISION/ORDER
Motion Seq. No. 002
Motion Seq. No. 001
Motion Seq. No. 003
HON. MARCY S. FRIEDMAN
Plaintiffs IKB International, S.A. (IKB S.A.) in liquidation and IKB Deutsche Industriebank AG (IKB AG) (together with IKB S.A., IKB) purchased over $1 billion of residential mortgage-backed securities (RMBS) certificates issued by 163 RMBS trusts (the Trusts) for which defendants served as the trustees or co-trustees (the Trustees). (Pls.' Memo. In Opp., at 4.) In these six separate actions, plaintiffs allege that their investments are almost worthless as a result of the Trustees' breaches of contractual, fiduciary, and statutory duties. Defendant Trustees move to dismiss plaintiffs' complaints, pursuant to CPLR 3211 (a) (1), (a) (3), (a) (5), and (a) (7), based on documentary evidence, lack of capacity to sue, the statute of limitations, and failure to state a cause of action.
The six separate actions are: Index No. 654436/2015, IKB International, S.A. v LaSalle Bank N.A. (Bank of America Action); Index No. 654438/2015, IKB International, S.A. v The Bank of New York (BNYM Action); Index No. 654439/2015, IKB International, S.A. v Deutsche Bank National Trust Company (Deutsche Bank Action); Index No. 654440/2015, IKB International, S.A. v HSBC Bank USA, N.A. (HSBC Action); Index No. 654442/2015, IKB International, S.A. v U.S. Bank, N.A. (US Bank Action); Index No. 654443/2015, IKB International, S.A. v Wells Fargo Bank, N.A. (Wells Fargo Action). Defendant Trustees are likewise referred to as Bank of America, BNYM, Deutsche Bank, HSBC, US Bank, and Wells Fargo, respectively. Each action concerns numerous Trusts. The Trusts at issue in each action are listed in Exhibit 1 to the complaint filed in each action. The claims involving certain Trusts have been resolved since commencement of the actions. (See e.g. Bank of America Action [NYSCEF Doc. No. 88]; Wells Fargo Action [NYSCEF Doc. No. 146].)
The parties were directed by the court to coordinate briefing on the motions to dismiss. Defendants submitted joint briefing on common issues. (Defs.' Joint Memo. In Supp. [NYSCEF Doc. No. 30]; Defs.' Joint Reply [NYSCEF Doc. No. 89].) The individual defendants in each action also submitted supplemental briefing addressed to arguments particular to the specific Trusts at issue in the individual actions. (Bank of America Supplemental Memo. In Supp. [Bank of America NYSCEF Doc. No. 31]; Aff. of Jacob Kreilkamp [Bank of America's Atty.] In Supp. [Kreilkamp Aff.] [Bank of America NYSCEF Doc No. 29]; BNYM Supplemental Memo. In Supp. [BNYM NYSCEF Doc. No. 46]; Aff. of Christopher Houpt [BNYM's Atty.] In Supp. [Houpt Aff.] [BNYM NYSCEF Doc. No. 28]; Deutsche Bank Supplemental Memo. In Supp. [Deutsche Bank NYSCEF Doc. No. 27]; Aff. of Kevin Biron [Deutsche Bank's Atty.] In Supp. [Biron Aff.] [Deutsche Bank NYSCEF Doc. No. 28]; HSBC Supplemental Memo. In Supp. [HSBC NYSCEF Doc. No. 66]; Aff. of Anna Clark [HSBC's Atty.] In Supp. [Clark Aff.] [HSBC NYSCEF Doc. No. 43]; US Bank Supplemental Memo. In Supp. [US Bank NYSCEF Doc. No. 45]; Aff. of Michael Marcucci [US Bank's Atty.] In Supp. [Marcucci Aff.] [US Bank NYSCEF Doc. No. 46]; Wells Fargo Supplemental Memo. In Supp. [Wells Fargo NYSCEF Doc. No. 22]; Aff. of Howard Sidman [Wells Fargo's Atty.] In Supp. [Sidman Aff.] [Wells Fargo NYSCEF Doc. No. 23].) Plaintiffs submitted a consolidated opposition addressed to both the joint briefing and supplemental briefing of individual defendants. (Pls.' Memo. In Opp. [NYSCEF Doc. No. 37]; Aff. of Seth Allen [Pls.' Atty.] In Opp. [Allen Aff.] [NYSCEF Doc. No. 38] Allen Aff., Exhs. 1-48 [NYSCEF Doc. Nos. 39-86].) In this decision, NYSCEF Doc. No. citations for the documents filed in all actions (such as the joint briefing) refer to the docket for the Bank of America Action, Index No. 654436/2015, unless expressly stated otherwise.
Background
As explained in the complaints, RMBS trusts were created to facilitate the securitization of residential mortgage loans and the issuance of the resulting securities to investors such as plaintiffs. (Bank of America Complaint, ¶ 36 [NYSCEF Doc. No. 3].) In the securitization process, the originator--i.e., lender—sells the loans to a sponsor or depositor, which transfers the mortgage loans to the trust. (Id., ¶ 37.) The sponsor or depositor also typically appoints a servicer to service the underlying mortgage loans—that is, to collect mortgage payments and take acts to minimize losses to the trust. (Id., ¶¶ 41, 43.) The trust issues the securities, which entitle investors to a portion of the revenue stream produced by principal and interest payments made by the borrowers. (Id., ¶¶ 36, 39.)
The complaints filed in the six actions are each over 100 pages. The complaints plead substantially similar allegations with respect to general background and certain common issues relevant to these motions. (Pls.' Memo. In Opp., at 4, n 3 [noting same].) In the interest of judicial economy, this decision cites the Bank of America complaint for common allegations. In addition, where allegations overlap, the decision may cite exemplar allegations from additional complaints.
Pursuant to the governing agreement for the trust, the originator(s), sponsor, and/or depositor, as seller, make various representations and warranties to the trust regarding the completeness of the mortgage loan files and the quality and characteristics of the underlying mortgage loans. (Id., ¶¶ 37, 65.) The governing agreements generally provide for a repurchase protocol, under which the seller(s) have an obligation to cure, substitute, or repurchase mortgages loans that do not conform to the representations and warranties. (Id.)
In these actions, there are two general types of RMBS Trusts, which are categorized on the basis of their governing agreements. The Pooling and Servicing Agreement (PSA) Trusts are New York common law trusts governed by PSAs. The Indenture Trusts are Delaware statutory trusts, typically governed by a Trust Agreement, an Indenture, and a Sales and Servicing Agreement. (See e.g. Bank of America Complaint, ¶¶ 50, 51.)
The PSAs, Indentures, Trust Agreements, and Sales and Servicing Agreements for the Trusts are collectively referred to as the Governing Agreements.
A trustee is appointed pursuant to the governing agreement to act on behalf of the RMBS trust. (Id., ¶¶ 46-49.) The duties of a trustee of either a PSA Trust or an Indenture Trust are defined by the governing agreement for the trust and are accordingly more limited than the duties of an ordinary trustee upon whom common law duties have historically been imposed. (See Royal Park Investments SA/NV v HSBC Bank USA, N.A., 109 F Supp 3d 587, 597 [SD NY 2015] [Royal Park v HSBC] [applying New York law in discussing the duties of an RMBS trustee], citing AG Capital Funding Partners, L.P. v State St. Bank & Trust Co., 11 NY3d 146, 156-157 [2008] [discussing the duties of a trustee under the federal Trust Indenture Act].) Prior to the occurrence of an event of default (EOD), as defined by the governing agreement for the trust, the trustee's duties are "governed solely by the terms of the [governing agreement] with two exceptions: a trustee must still (1) avoid conflicts of interest, and (2) perform all basic, non-discretionary, ministerial tasks with due care." (Royal Park v HSBC, 109 F Supp 3d at 597 [internal quotation marks and citations omitted].) These two pre-EOD extra-contractual obligations "are not construed as 'fiduciary duties,' but as obligations whose breach may subject the trustee to 'tort liability.'" (Id. [emphasis in original], citing AG Capital Funding Partners, L.P., 11 NY3d at 157.)
The trustee's obligations change upon the occurrence of a contractually defined EOD. The trustee's obligations then "come more closely to resemble those of an ordinary fiduciary, regardless of any limitations or exculpatory provisions contained in the [governing agreement]." (Royal Park v HSBC, 109 F Supp 3d at 597 [internal quotation marks and citations omitted].) Post-EOD, while a trustee's obligations are still defined by the governing agreement, the trustee "must exercise its rights and powers under the Agreement[] using the same degree of care and skill as a prudent person would exercise under the circumstances in the conduct of his or her own affairs." (Id., at 595, 597.)
In these actions, plaintiffs allege that defendant Trustees breached pre and post-EOD duties owed to plaintiffs. Plaintiffs assert a single cause of action for breach of contract against defendants in each action. The alleged breaches of the pre and post-EOD duties include "(i) the duty to take possession of and review the mortgage files and loan files; (ii) the duty to provide notice of and enforce the sellers' duty to remedy breaches of representations and warranties ('R&Ws') relating to the loans; (iii) the duty to protect investors whenever [the Trustee] became aware of uncured loan servicing failures; (iv) the duty to accurately report the state of the Trusts to investors; and (v) the duty to comply with [the Trustee's] heightened post-Event of Default duty to act as a prudent person would governing his own affairs." (Pls.' Memo. In Opp., at 4.)
Plaintiffs also assert causes of action for breach of fiduciary duty, breach of the duty to avoid conflicts of interest, and violation of investor protection statutes, including the Streit Act, the Trust Indenture Act (TIA), SEC Regulation AB (Reg AB), and Article 9 of the Uniform Commercial Code (UCC). (Pls.' Memo. In Opp., at 4.)
Defendants contend that these actions are subject to dismissal at the pleading stage because plaintiffs seek to impose liability on the Trustees for breach of broader contractual and legal obligations than those provided for by the Governing Agreements, common law, or statute. (See Defs.' Joint Memo. In Supp., at 2-3, 8.) More particularly, defendants contend that the Trustees do not have a duty to monitor other parties or to "'nose to the source' of possible misconduct prior to a contractually defined Event of Default," and that the Trustees did not have sufficient notice of any pre-EOD breaches of representations and warranties or loan servicing failures to trigger the Trustees' duties pursuant to the Governing Agreements to provide notice or to pursue remedies on behalf of the Trusts. (Id., at 2.) As to plaintiffs' post-EOD claims, defendants argue that plaintiffs do not adequately allege that Events of Default in fact occurred or that the Trustees had the required actual knowledge or written notice of EODs. (Id., at 2-3.)
In addition, defendants contend that all of plaintiffs' claims are barred by the no-action clauses in the Governing Agreements. (Id., at 25-28.) Defendants further contend that plaintiffs' tort claims are barred by the economic loss doctrine because they are duplicative of the contract claims, and that they are, in any event, inadequately pleaded. (Defs.' Joint Memo. In Supp., at 3, 28.) With respect to the statutory claims, defendants contend that the statutes do not provide a private right of action and/or do not impose any duties upon the Trustees. (Id., at 3.) Defendants also assert that various claims are time-barred. (Id.)
DISCUSSION
1. The No-Action Clauses
Defendants represent that "[e]ach of the Governing Agreements contains a 'no-action' clause prohibiting individual Holders like Plaintiffs from pursuing legal action related to the agreement unless the Holders first (i) demand that a specified deal party initiate the suit; and (ii) receive consent to the litigation from at least 25% of all Holders." (Defs.' Joint Memo. In Supp., at 25.) Plaintiffs do not dispute that they did not comply with the demand and consent requirements of the no-action clauses, but contend that compliance with these clauses is excused.
Certain of the Trusts at issue designate the Trustee as the notice party under the no-action clause—i.e., the party that is to receive a demand to initiate suit. Since the briefing of these motions, the Appellate Division has expressly addressed the application of a no-action clause in an action brought by an investor against an RMBS trustee, where the clause required the demand to be made on the trustee. The Court reasoned that compliance was "excused because it would be futile to demand that the trustee commence an action against itself for breaches of the PSA." (Blackrock Balanced Capital Portfolio [FI] v U.S. Bank N.A., 165 AD3d 526, 528 [1st Dept 2018] [Blackrock], citing Quadrant Structured Products Co., Ltd. v Vertin, 23 NY3d 549, 566 [2014]; Cruden v Bank of New York, 957 F2d 961, 968 [2d Cir 1992].) On this authority, the court holds that demand is excused here for Trusts that designate the Trustee as the notice party.
Other Trusts designate another deal party, such as the servicer, master servicer, or securities administrator, to receive the demand under the no-action clause. (Defs.' Joint Memo. In Supp., at 25-26.) In two recent decisions of actions brought by investors against RMBS trustees, Justices of this Court have held that the demand requirement may also be excused with respect to such third parties. (See MLRN LLC v U.S. Bank N.A., 2019 NY Slip Op 33379 [U], 2019 WL 5963202, *8 [Sup Ct, NY County 2019, Borrok, J.] [MLRN]; accord Western and Southern Life Ins. Co. v U.S. Bank N.A., 2020 NY Slip Op 51307 [U], 2020 WL 6534496, *3-4 [Sup Ct, NY County 2020, Cohen] [Western].) In Western, for example, the no-action clause required service of the demand on the securities administrator, which was also the master servicer. The plaintiffs' case against the trustee was based on the trustee's failure to address the master servicer's breaches. The Court reasoned that service of the demand on the securities administrator should be excused because the "[p]laintiffs' case against [the trustee] depends, in part, on [the trustee's] failure to address the Master Servicer's breaches," and requiring the demand would therefore be "tantamount to requiring" that the securities administrator/master servicer "bring claims implicating its own alleged misconduct." (Id.) Here, as in MLRN and Western, the misconduct of the non-Trustee notice parties is directly implicated by the plaintiffs' claims against the Trustees in these actions. On the persuasive authority of these cases, this court similarly holds that compliance is excused with respect to no-action clauses that require notice upon a servicer, master servicer, or securities administrator affiliated with, or performing duties similar to those of, a servicer or master servicer.
Plaintiffs cite HELT 2007-FRE1 as an example of a Trust with respect to which it would "absurd" to demand that a non-Trustee notice party sue the Trustee. There, BNYM is the Trustee, Wells Fargo is the Securities Administrator and Master Servicer, and Wells Fargo is also the notice party. As plaintiffs explain: "A central part of Plaintiffs' claims against BNYM is that it failed to take action to remedy failures on the part of servicers to perform their obligations to the Trusts. . . ." If Wells Fargo were to sue BNYM, it would be required "to allege and prove its own misconduct and liability to the trust. . . ." (Pls.' Memo. In Opp., at 41.)
It is noted that Courts in the Southern District of New York have rejected the investors' argument that "'it would be equally absurd to make a demand on the Servicer to sue the trustee for failing to take action against the Servicer . . . .'") (See e.g. Commerzbank AG v U.S. Bank N.A., 277 F Supp 3d 483, 495 [SD NY 2017] [internal citation omitted].) Like the Courts in Western (2020 WL 6534496, at *4) and MLRN (2019 WL 5963202, at * 8), this court declines to follow the federal authority on this issue.
The court rejects defendants' alternative argument that, even if demand may be excused, the no-action clauses preclude plaintiffs' claims because there is no basis to excuse "the other requirements of the no-action clause, including that Plaintiffs obtain a 25% threshold of Holder support before embarking on litigation." (Defs.' Joint Memo. In Supp., at 27.) As the Appellate Division has also held, "[o]nce performance of the demand requirement in the no-action clause is excused, performance of the entire provision is excused, including the requirement that demand be made by 25% of the certificate holders." (Blackrock, 165 AD3d at 528.)
The court accordingly holds that the no-action clauses are not a bar to plaintiffs' claims.
2. Pre-Event of Default Breaches of Contract
Plaintiffs plead a first cause of action against all defendants for breach of contract. (Bank of America Complaint, ¶¶ 382-411; BNYM Complaint, ¶¶ 361-390 [BNYM NYSCEF Doc. No. 2]; Deutsche Bank Complaint, ¶¶ 527-556 [Deutsche Bank NYSCEF Doc. No. 9]; HSBC Complaint, ¶¶ 370-399 [HSBC NYSCEF Doc. No. 3]; US Bank Complaint, ¶¶ 559-590 [US Bank NYSCEF Doc. No. 24]; Wells Fargo Complaint, ¶¶ 413-442 [Wells Fargo NYSCEF Doc. No. 3].) The cause of action alleges both pre and post-EOD breaches, which will be considered in turn.
The pre-EOD breaches of contract alleged by plaintiffs concern: (i) the Trustees' failure to take physical possession or to ensure that their agent(s) took possession of complete mortgage files; to review mortgage files for missing, incomplete, or defective documentation; and to identify noncompliant mortgage files; (ii) the Trustees' failure to provide notice of and remedy breaches of R&Ws made to the Trusts; (iii) the Trustees' failure to address loan servicing failures by the servicers and master servicers for the Trusts; and (iv) the Trustee's failure to forward accurate reports to investors, including remittance reports and Regulation AB certifications. (Pls.' Memo. In Opp., at 5-6.)
A. Mortgage Loan Files
Plaintiffs allege that the Governing Agreements require the Trustees to review the mortgage loan files for the mortgages held by the Trusts and to issue certifications and/or exception reports identifying any deficiencies in the files. (Bank of America Complaint, ¶¶ 62-70; BNYM Complaint, ¶¶ 72-80; Deutsche Bank Complaint, ¶¶ 60-68; HSBC Complaint, ¶¶ 60-68; US Bank Complaint, ¶¶ 65-73; Wells Fargo Complaint, ¶¶ 62-70.) In addition, plaintiffs allege that, with respect to any defects in the mortgage loan files, the Trustees were required to "demand that the Seller cure the defect leading to the exception or repurchase or replace the defective loans." (Bank of America Complaint, ¶ 70; BNYM Complaint, ¶ 81; Deutsche Bank Complaint, ¶ 69; HSBC Complaint, ¶ 69; US Bank Complaint, ¶ 74; Wells Fargo Complaint, ¶ 71.) According to plaintiffs, the Trustees failed to comply with these obligations and to ensure that loans lacking complete mortgage files were removed from the mortgage pools. (Bank of America Complaint, ¶ 93; BNYM Complaint, ¶ 104; Deutsche Bank Complaint, ¶ 92; HSBC Complaint, ¶ 92; US Bank Complaint, ¶ 108; Wells Fargo Complaint, ¶ 94.) Defendants contend that these claims are time-barred because the mortgage loan file obligations arose in connection with the closing of the Trusts, which occurred in 2001 through 2007. (Defs.' Joint Memo. In Supp., at 3.)
As a federal court has persuasively reasoned in similar circumstances, alleged breaches related to receipt of mortgage loan files and creation of certification and exception reports generally occurred at or near the time the trusts closed. (See Royal Park v HSBC, 109 F Supp 3d at 608; see also Fixed Income Shares: Series M v Citibank, N.A., 2017 NY Slip Op 50877[U], 2017 WL 2870052, *2 [Sup Ct, NY County 2017], affd as mod on other grounds, 157 AD3d 541 [1st Dept 2018] [Fixed Income].)
This court also holds that the Trustees' obligations with respect to the completeness of the loan files generally arose at or near the time of closing. Defendants assert, and plaintiffs do not dispute, that the Governing Agreements for the Trusts set deadlines after the closing dates for review of the mortgage loan files. (See e.g. Kreilkamp Aff., Exh. P [Bank of America NYSCEF Doc. No. 29] [identifying Trusts]; Houpt Aff., Exh. P [BNYM NYSCEF Doc. No. 44] [identifying Trusts]; Biron Aff., Exh. P [Deutsche Bank NYSCEF Doc. No. 44] [identifying Trusts]; Allen Aff., Exh. 8 [NYSCEF Doc. No. 46] [IMPAC 2004-3 Indenture § 2.03 (b) and MLMI 2005-SL3 PSA § 2.02—provisions setting an outside time limit of 180 days and 60 days, respectively, from the closing of the Trusts for compliance with mortgage loan review and certification/report obligations].)
The statute of limitations for breach of contract is six years from the date of breach. (CPLR 213 [2].) Here, the Trusts all closed by 2007 and the mortgage loan file obligations were therefore generally breached by 2008, at the latest. (See Defs.' Joint Memo. In Supp., at 3.) These actions were not filed until December 30, 2015, more than six years later. The mortgage loan file claims that accrued at or near the time of the Trusts' closings are accordingly untimely.
In so holding, the court rejects plaintiffs' contention that the limitations period only began to run upon the expiration of the Trust's right to enforce its remedies for the mortgage loan file defects. (Pls.' Memo. In Opp., at 64.) The alleged breaches occurred on the dates on which the Trustees were first required, in connection with the closing of the Trusts, to perform the mortgage loan file obligations, including not only the review and certification of the mortgage loan files but also any obligation to seek repurchase based on loan file defects. The limitations period began at the time of those breaches, not at the time the Trustees were precluded from curing the breaches because they could no longer initiate timely repurchase actions. The court's holding is consistent with other courts that have addressed this issue. (See Royal Park v HSBC, 109 F Supp 3d at 608; Fixed Income, 2017 WL 2870052, at *2; but see Western, 2020 WL 6534496, at *6-7.)
The scope of the Trustees' repurchase obligations is discussed further below.
In separate memoranda, Wells Fargo, US Bank, and Deutsche Bank contend that their duty under the Governing Agreements for certain Trusts is limited to "acknowledg[ing] receipt" of the mortgage loan files. (Deutsche Bank Supplemental Memo. In Supp., at 6; US Bank Supplemental Memo. In Supp., at 4; Wells Fargo Supplemental Memo. In Supp., at 3.) The court need not address the scope of the duty. Whether or not the duty required more than mere acknowledgment of receipt of the files, the duty generally arose at or near the closing of the Trusts, and any claim based on breach of such duty is time barred.
The court does not, however, hold that the mortgage loan file claims are time-barred as a matter of law to the extent that the claims are based upon allegations that the Governing Agreements for certain Trusts impose continuing obligations on the Trustees with respect to the mortgage loan files—e.g., obligations to review files for substitute or replacement loans. (See Pls.' Memo. In Opp., at 64, n 24; Allen Aff., Exhs. 36, 37, 38 [NYSCEF Doc. Nos. 74, 75, 76] [identifying Trusts].) At the pleading stage, the mortgage loan file claims regarding such Trusts are maintainable. (See Royal Park v HSBC, 109 F Supp 3d at 608.)
Plaintiffs also claim, with respect to certain Trusts, that the Trustees breached their obligation to hold mortgage loan files for the benefit of the Trusts. (See Pls.' Memo. In Opp., at 16; Allen Aff., Exhs. 4, 5 [NYSCEF Doc. Nos. 42, 43] [identifying such Trusts].) Determination of the scope of the Trustees' duties under these provisions requires resolution of factual and legal issues which are not properly addressed on these motions. The claims are therefore maintainable at this juncture. This holding should not, however, be construed as reviving any of the mortgage loan file claims which, as held above, arose at or near the time of the closings and are time-barred.
Bank of America, Deutsche Bank, HSBC, US Bank, and Wells Fargo also argue that mortgage loan file claims for certain Trusts cannot be maintained against the Trustees because those obligations are assigned to a custodian under the Governing Agreements. (Bank of America Supplemental Memo. In Supp., at 4; Deutsche Bank Supplemental Memo. In Supp., at 6; HSBC Supplemental Memo. In Supp., at 5-6; US Bank Supplemental Memo. In Supp., at 4; Wells Fargo Supplemental Memo. In Supp., at 3.) Plaintiffs' opposition identifies four categories of provisions in certain Trusts addressing the respective mortgage loan file obligations of the Trustees and custodians or others. (Pls.' Memo. In Opp., at 17-18; Allen Aff., Exhs. 8, 10, 11, 12, 13 [NYSCEF Doc. Nos. 46, 48, 49, 50, 51] [identifying Trusts].) Plaintiffs' opposition also identifies two Deutsche Bank Trusts which define the custodian as the Trustee. (Pls.' Memo. In Opp., at 17; Allen Aff., Exh. 9 [NYSCEF Doc. No. 47] [identifying Trusts].) Interpretation of these provisions requires resolution of factual and legal issues which are not properly addressed on these motions. To the extent that these claims are not time-barred, the claims may be maintained at the pleading stage as to the relevant Trusts.
B. Breaches of R&Ws and Servicing Failures and Trustees' Knowledge of Such Breaches
Defendants contend that plaintiffs do not adequately plead that the Trustees breached any duty to "provide notice to other deal parties that the Sellers had breached R&Ws or that the Servicers or Master Servicers had breached their servicing contracts. . . ." (Defs.' Joint Memo. In Supp., at 9.) Defendants argue that "Plaintiffs' allegations fail because (i) such duties arise, if at all, only upon 'actual knowledge' or 'discovery' of specific breaches as to specific loans; and (ii) Plaintiffs do not allege facts plausibly showing that Defendants ever acquired such knowledge." (Id. [emphasis in original].)
In the context of substantially similar claims brought by investors against RMBS trustees for breach of pre-EOD contractual duties, the Appellate Division has expressly rejected a requirement that breaches of specific loans be pleaded. (Blackrock, 165 AD3d at 527-528 [summarizing Fixed Income (157 AD3d at 542), as "rejecting the argument that plaintiffs were 'required to allege loan-specific breaches'"].) Rather, it is sufficient to plead "factual allegations [which] raise a plausible inference that there were in fact breaches of the Sellers' representations and warranties with respect to the loans included in the trusts at issue in each of these cases." (Royal Park v HSBC, 109 F Supp 3d at 602.)
Here, plaintiffs meet this standard. In support of their claims that there were breaches of R&Ws regarding the loans in the Trusts at issue, plaintiffs plead extensive allegations regarding the "[t]he negative performance of the Trust collateral—including high defaults, delinquencies and foreclosures" (e.g. Bank of America Complaint, ¶¶ 95, 165-171; BNYM Complaint, ¶¶ 173-179; Deutsche Bank Complaint, ¶¶ 206-212); significant rating downgrades of the Trusts (Bank of America Complaint, ¶¶ 172-174; BNYM Complaint, ¶¶ 180-182; Deutsche Bank Complaint, ¶¶ 213-215); systemic disregard of underwriting standards, as evidenced by government reports and investigations (Bank of America Complaint, ¶¶ 175-187; HSBC Complaint, ¶¶ 158-170; US Bank Complaint, ¶¶ 200-212) and by litigation against the same lenders that originated loans that were sold to the Trusts (Bank of America Complaint, ¶¶ 188-257; US Bank Complaint, ¶¶ 213-418; Wells Fargo Complaint, ¶¶ 174-288).
Plaintiffs also plead extensive allegations as to servicer breaches in connection with the Trusts. Plaintiffs allege that the servicers "failed to notify parties to the Governing Agreements that the Sellers violated representations and warranties at the time they sold the loans to the Trusts." (Bank of America Complaint, ¶ 293; HSBC Complaint, ¶ 281; Deutsche Bank Complaint, ¶ 435.) They further allege that the Governing Agreements require the servicers to administer the mortgage loans "(1) in the same manner in which they service and administer similar mortgage loans for their own portfolios or for other third parties. . . ; (2) with a view to maximizing the recoveries with respect to mortgage loans . . . ; and (3) without regard to, among other things, the Servicers' right to receive compensation or other fees . . . , their obligation to making servicing advances . . . , and their ownership, servicing, or management for others of any other mortgage loans." (Bank of America Complaint, ¶ 299; HSBC Complaint, ¶ 288; US Bank Complaint, ¶ 470.) As alleged by plaintiffs, the servicers "have systematically and pervasively violated these prudent servicing obligations." (Bank of America Complaint, ¶ 300; HSBC Complaint, ¶ 289; US Bank Complaint, ¶ 471.) The obligations that plaintiffs allege the servicers breached include: the servicers' obligation "to use their best efforts, consistent with accepted servicing practices, to foreclose upon or otherwise comparably convert the ownership of properties securing mortgage loans that come into and continue in default" (Bank of America Complaint, ¶ 309; Deutsche Bank Complaint, ¶ 462; Wells Fargo Complaint, ¶ 347); and their obligations to make modifications to remedy predatory lending violations and to make required advancements of principal and interest payments to the Trusts (Bank of America Complaint, ¶¶ 320, 324; BNYM Complaint, ¶¶ 312, 316; HSBC Complaint, ¶¶ 315, 319.) Plaintiffs also allege that the servicers breached their obligations by "certifying that they had fulfilled all of their obligations under Governing Agreements in all material respects, when in fact, they knew this to be false. . . ." (Bank of America Complaint, ¶ 330; Deutsche Bank Complaint, ¶ 483; US Bank Complaint, ¶ 511 .)
In support of their claims of these breaches, plaintiffs plead extensive allegations as to government investigations and lawsuits against the same servicers that service the loans at issue in these actions. (Bank of America Complaint, ¶¶ 299-308, 313-317; BNYM Complaint, ¶¶ 289-300, 305-309; Deutsche Bank Complaint, ¶¶ 446-461, 466-470.) Plaintiffs also allege that various government agencies conducted reviews of fourteen federally regulated servicers, including several of the servicers to the Trusts, in which they found "critical weaknesses," which led to enforcement actions against the servicers. (Bank of America Complaint, ¶¶ 310-312; HSBC Complaint, ¶¶ 305-307; US Bank Complaint, ¶¶ 488-490.) Plaintiffs plead that these investigations and actions support their allegations of the servicers' "systematic and pervasive deviation from usual, customary, and lawful servicing practices in their administration of mortgages and, more specifically, illegal and illicit servicing activities by the same Servicers that service the loans held by the Trusts." (Bank of America Complaint, ¶ 287; see US Bank Complaint, ¶ 455; Wells Fargo Complaint, ¶ 321.)
These allegations support a plausible inference of widespread breaches of the sellers' representations and warranties and of the servicers' obligations regarding the loans underlying the Trusts in these actions.
Plaintiffs also plead facts that support a plausible inference that defendants had knowledge of the breaches of representations and warranties regarding the loans at issue in the Trusts. Plaintiffs allege in detail that defendants knew of the breaches of R&Ws based on the high delinquency and foreclosure rates in the loan pools; reports that defendants received from servicers or others regarding the performance of the mortgage loans in the Trusts, and reports that the Trustees themselves published regarding the performance of the loans; credit downgrades of the Trusts' certificates; and public disclosures of systematic and pervasive violations of underwriting standards. (E.g. Bank of America Complaint, ¶¶ 261-266; US Bank Complaint, ¶¶ 422-427; BNYM Complaint, ¶¶ 246-249.) In addition, plaintiffs allege that certain defendants received notice of breaches through involvement, in their capacity as trustee or master servicer, in financial guaranty insurer litigation against the same sellers and originators as those that sold loans to the Trusts at issue. (Bank of America Complaint, ¶¶ 269-275; Wells Fargo Complaint, ¶¶ 302-308.) Certain defendants, in their capacity as securitizers, were also named in RMBS litigation alleging their abandonment of underwriting guidelines. (Bank of America Complaint, ¶¶ 276-285; Deutsche Bank Complaint, ¶¶ 410-419; HSBC Complaint, ¶¶ 242-252.)
The complaints further allege that defendants acquired actual knowledge of servicer violations from early 2009 by various means. (Pls.' Memo. In Opp., at 37.) Plaintiffs allege that defendants received servicing reports from the servicers, which alerted defendants to improper servicing practices and servicers' failure to enforce sellers' repurchase obligations. (Bank of America Complaint, ¶¶ 332-334; BNYM Complaint, ¶¶ 324-326; Deutsche Bank Complaint, ¶¶ 485-487; HSBC Complaint, ¶¶ 327-329; US Bank Complaint, ¶¶ 513-515; Wells Fargo Complaint, ¶¶ 371-373.) Plaintiffs also allege that all defendants received certifications that they knew to be false because the servicers were not meeting their obligations under the Governing Agreements. (Bank of America Complaint, ¶ 349; BNYM Complaint, ¶ 331; Deutsche Bank Complaint, ¶ 494; HSBC Complaint, ¶ 338; US Bank Complaint, ¶ 525; Wells Fargo Complaint, ¶ 382.) In addition, plaintiffs allege that most defendants, in their capacity as trustees of trusts that are not the subject of these actions, received written notice from certificateholders or investors of the same systematic servicer violations that are at issue in these actions. (Bank of America Complaint, ¶¶ 342-345; BNYM Complaint, ¶ 327; Deutsche Bank Complaint, ¶¶ 490-491; HSBC Complaint, ¶¶ 334-337; US Bank Complaint, ¶¶ 519-524; Wells Fargo Complaint, ¶¶ 379-381.) Plaintiffs also cite "widely publicized notices from investors to RMBS Trustees . . . identifying systematic servicing violations by major RMBS Servicers who also acted as Servicers for the Trusts." (Bank of America Complaint, ¶ 341; BNYM Complaint, ¶ 328; Deutsche Bank Complaint, ¶ 489; HSBC Complaint, ¶ 336; US Bank Complaint, ¶ 522; Wells Fargo Complaint, ¶ 380.) Plaintiffs further allege that several defendants had knowledge of servicer violations because they were involved in government enforcement proceedings and litigation stemming from those violations. (Bank of America Complaint, ¶¶ 335-338; HSBC Complaint, ¶¶ 330-333; US Bank Complaint, ¶¶ 516-518; Wells Fargo Complaint, ¶¶ 374-376.) Finally, plaintiffs allege issuance by Deutsche Bank in October 2010 of "a widely-publicized notice to all RMBS certificateholders in trusts for which Deutsche Bank served as trustee confirming Deutsche Bank's awareness of ongoing government investigations into improper servicing practices." (Bank of America Complaint, ¶ 347.) Also in 2010, Deutsche Bank sent a memorandum to servicers addressing "serious . . . defects in foreclosure practices. . . ." (Id. [internal quotation marks and citation omitted]; see Deutsche Bank Complaint, ¶¶ 492-493.)
The disclosures in these servicer reports are discussed in detail below in the section of this decision on post-EOD claims involving servicer failures.
As a federal court has persuasively reasoned, "[t]he question is not whether in fact the Trustee had actual knowledge—that is a factual determination left for trial. Instead [on a motion to dismiss], the question is whether plaintiffs have pled plausible facts supporting allegations of actual knowledge." (Royal Park v HSBC, 109 F Supp 3d at 602-603 [internal quotation marks, brackets, and ellipses omitted] [emphasis in original].) Here, the court holds that plaintiffs' allegations are sufficient to plead the Trustees' discovery or knowledge of breaches of R&Ws and servicing failures.
According to plaintiffs, some Governing Agreements provide that the Trustee must have "actual knowledge" of breaches, while most other Governing Agreements provide that the Trustee must "discover" the breaches, before it is obligated to take certain actions. (Pls.' Memo. In Opp., at 11, n 6.) In Fixed Income, the Appellate Division noted that one section of the PSA used the term discovery, while another used the term actual knowledge, in describing the notice of breaches that triggered the trustee's obligations. The Appellate Division reasoned that the difference "implies that these terms have different meanings." (157 AD3d at 542.) This court need not address the impact of the different terms here, as the court holds that the allegations of the complaints are sufficient, at the pleading stage, to meet even the more stringent actual knowledge standard.
This holding is consistent with the overwhelming weight of authority addressing motions to dismiss substantially similar claims based on substantially similar allegations. (See e.g. Fixed Income, 157 AD3d at 542, affg 2017 WL 2870052, at *4 [holding that the trustee's knowledge of alleged breaches of R&Ws was sufficiently pleaded where the plaintiff investors alleged that the trustee "had knowledge of breaches of representations and warranties as a result of its preparation of final certificates, document exception reports, monitoring of trust performance, and regular interaction with credit rating agencies"]; Royal Park v HSBC, 109 F Supp 3d at 602 [holding that the plaintiff investors pleaded the trustee's actual knowledge of the seller's breaches of representations and warranties with respect to the loans at issue based on the plaintiffs' detailed allegations as to "(1) the high number of borrower defaults; (2) the enormous losses to the Trusts; (3) the collapse of the certificates' and notes' credit ratings; (4) reports and litigation concerning common originators' systemic abandonment of underwriting standards, as well as common Sponsors' pervasive disregard of prudent securitization standards; (5) litigation contending the specific loans in some of the specific Trusts had been misrepresented; and (6) [the trustee's] involvement in putback efforts involving the same Sellers"]; National Credit Union Admin. Board v Deutsche Bank Natl. Trust Co. 410 F Supp 3d 662, 682 [SD NY 2019] [Natl. Credit Union] [holding that the complaint adequately pleaded the RMBS trustee's knowledge of breaches of R&Ws based on similar allegations, and that the complaint adequately pleaded that the trustee "knew of widespread master servicer defaults (which trigger EODs) through numerous public lawsuits, investigations, and reports as well as 'servicing reports and monthly remittance reports' defendant would have received"] [citations to complaint omitted].)
Commerce Bank v Bank of New York Mellon (141 AD3d 413 [1st Dept 2016]) (Commerce Bank), on which defendants rely, is not to the contrary. (See Defs.' Joint Memo. In Supp., at 11.) Commerce Bank does not address the requisite specificity of allegations as to the trustee's knowledge of breaches of R&Ws. Rather, the Court appears to have held that the trustee there was contractually obligated to give notice of breaches only of particular R&Ws, but that the plaintiffs did not allege that the trustee discovered breaches of such R&Ws. (141 AD3d at 414.) In any event, subsequent to Commerce Bank, the First Department addressed more closely analogous pleadings and claims in Blackrock and Fixed Income, which this court follows.
The court rejects defendants' apparent contention that the above holding imposes an extra-contractual duty on the Trustees to "nose to the source" to discover whether breaches of R&Ws or servicer defaults occurred. (See Defs.' Joint Memo. In Supp., at 14-15.) As defendants correctly argue, in similar circumstances the Appellate Division rejected the claim that the RMBS trustee had such a duty. (Commerce Bank, 141 AD3d at 415-416.) The court's holding is merely that the complaints adequately plead that the Trustees did in fact have knowledge of breaches regarding the loans in the Trusts at issue.
C. Enforcement of Repurchase Rights
Plaintiffs' complaints also allege that the Trustees breached contractual obligations triggered by the Trustees' discovery or knowledge of breaches of R&Ws. More particularly, plaintiffs allege that, upon such notice or discovery, the Governing Agreements require the Trustees to provide notice and/or pursue certain remedies on behalf of the Trusts, including the duty to enforce put-back rights--i.e., the seller's and/or originator's obligation to substitute or repurchase mortgage loans that do not conform to the seller's R&W's. (E.g. Bank of America Complaint, ¶¶ 71-72; BNYM Complaint, ¶¶ 82-83; Deutsche Bank Complaint, ¶¶ 70-71.) Plaintiffs also allege that defendants failed to enforce repurchase remedies arising from mortgage loan file defects. (Bank of America Complaint, ¶¶ 70, 387; BNYM Complaint, ¶¶ 81, 366; Deutsche Bank Complaint, ¶¶ 69, 532.)
For certain Trusts, defendants do not appear to dispute that the Trustees have an obligation to enforce put-back rights upon discovery or knowledge of breaches of R&Ws. As to these Trusts, however, defendants argue that plaintiffs do not adequately allege that defendants "had actual knowledge of or actually discovered specific breaches as to specific loans" and, accordingly, that plaintiffs' allegations that defendants "should have provided notice or taken action with respect to such loans must be dismissed." (Defs.' Memo. In Supp., at 15.) Having held above that plaintiffs adequately plead the Trustees' knowledge or discovery of breaches, the court also holds that plaintiffs may also maintain their claims regarding the Trustees' failure to perform the obligations under the Governing Agreements that are triggered by such knowledge or discovery.
With respect to other Trusts, defendants contend that, regardless of whether plaintiffs adequately plead notice or discovery of breaches by the Trustee, the Governing Agreements for these Trusts "do not obligate the Trustee to enforce putback rights." (Defs.' Memo. In Supp., at 15, n 6.) These Trusts are specifically addressed in the supplemental briefs of Bank of America, BNYM, Deutsche Bank, HSBC, US Bank, and Wells Fargo. (Bank of America Supplemental Memo. In Supp., at 2-5; BNYM Supplemental Memo. In Supp., at 4; Deutsche Bank Supplemental Memo. In Supp., at 7; HSBC Supplemental Memo. In Supp., at 7-8; US Bank Supplemental Memo. In Supp., at 2-3; Wells Fargo Supplemental Memo. In Supp., at 1-2.) The operative provisions of the Governing Agreements cited by defendants fall into four general categories: (i) Governing Agreements that do not specifically assign the obligation to enforce put-back rights to any specific deal party (Bank of America, BNYM, Deutsche Bank, US Bank, Wells Fargo); (ii) Governing Agreements that assign the duty to another party (US Bank); (iii) Governing Agreements that provide for the Trustee to enforce put-back rights only upon the failure of the servicer to do so (Wells Fargo); and (iv) Governing Agreements that require written notice to the Trustee (Deutsche Bank, HSBC, US Bank).
As to the Trusts in the first category, the PSAs provide that the Trustee agrees to hold the Trust Fund and "exercise the rights referred to above" for the benefit of the certificateholders. (Allen Aff., Exh. 17 [NYSCEF Doc. No. 55] [citing such provisions in Bank of America, BNYM, Deutsche Bank, US Bank, and Wells Fargo Trusts].) It is undisputed that repurchase rights are among the rights of the Trusts. The silence of the Governing Agreements as to the particular party that is to enforce this specific remedy on behalf of the Trusts does not relieve the Trustees of their obligation to enforce remedies pursuant to the broader charge of the Governing Agreements. Other courts addressing the effect of similar PSA provisions have reached the same conclusion. (See Royal Park Investments SA/NV v Deutsche Bank Natl. Trust Co., 2016 WL 439020, *4 [SD NY 2016]; Western, 2020 WL 6534496, at *5.)
As to the second category, which applies to certain US Bank Trusts, the PSAs provide that "the Securities Administrator on behalf of the Trustee shall enforce" the put-back rights. (Marcucci Aff., Exh. M [NYSCEF Doc. No. 59].) Based on this provision, US Bank argues that it had no duty to enforce the put-back obligations. (US Bank Supplemental Memo. In Supp., at 2-3.) The court holds that the contractual requirement that the securities administrator act on behalf of the Trustee raises legal and factual issues, which are not properly resolved on a motion to dismiss, as to whether US Bank retained duties to ensure that put-back rights were enforced.
As to the third category, involving one Wells Fargo Trust, the PSA provides that "the Servicer, to the extent it is not the Originator, the Seller or an Affiliate of the Seller, and otherwise the Trustee" shall enforce the put-back rights. (Sidman Aff., Exh. M [NYSCEF Doc. No. 33].) Wells Fargo argues that, under this provision, "the trustee is required to enforce putback rights only if the servicer fails to do so, which has not been pled." (Wells Fargo Supplemental Memo. In Supp., at 1.) Contrary to Wells Fargo's contention and, as held below, the pleading as to the defaults of the servicers of the Wells Fargo Trusts is sufficient even absent allegations as to specific servicer's defaults.
As to the Trusts in the fourth category, various Governing Agreements provide for the Trustee to enforce the put-back rights upon the receipt of written notice of a breach. (E.g. Biron Aff., Exh. O [NYSCEF Doc. No. 43] [Deutsche Bank PSAs providing that "[u]pon receiving written notice of a breach," the Trustee shall enforce the put-back rights]; Marcucci Aff., Exh. O [NYSCEF Doc. No. 61] [US Bank PSA providing that "if the Trustee receives written notice that the Seller or related Originator" has not cured a breach, "the Trustee, on behalf of the Trust, shall enforce" the put-back rights].) Defendants argue that, under such provisions, the Trustee has a pre-EOD duty to enforce put-back rights only "if it has received written notice of a specific, loan-level breach, and Plaintiffs do not allege that the DB Trustees ever received such written notice." (Deutsche Bank Supplemental Memo. In Supp., at 7; see HSBC Supplemental Memo. In Supp., at 7; US Bank Supplemental Memo. In Supp., at 3.) The court assumes for purposes of these motions that written notice is required under these provisions to trigger the Trustees' obligation to enforce the put-back rights. As discussed at length below, the court holds that, at the pleading stage, the complaint adequately alleges that the Trustees received written notice.
D. Remittance Reports
Plaintiffs also allege that defendants breached the Governing Agreements by failing to forward to rating agencies and make available to investors accurate monthly remittance reports "describing the performance of underlying loans." (Bank of America Complaint, ¶ 85; BNYM Complaint, ¶ 96; Deutsche Bank Complaint, ¶ 84; HSBC Complaint, ¶ 84; U.S. Bank Complaint, ¶ 89; Wells Fargo Complaint, ¶ 86.)
Defendants contend that "for certain of the Trusts, Plaintiffs' claims fail because the Governing Agreements placed the responsibility for preparing and forwarding Remittance Reports not on Defendants, but rather on third parties such as Securities Administrators." (Defs.' Joint Memo. In Supp., at 17 [emphasis in original].) The court agrees that plaintiffs' claims regarding the remittance reports are not maintainable with respect to the Trusts identified by Deutsche Bank, HSBC, and US Bank in their supplemental submissions, which delegated the responsibility to prepare the reports to other parties. (Deutsche Bank Supplemental Memo. In Supp., at 8; Biron Aff., Exh. Q [identifying Trusts] [Deutsche Bank NYSCEF Doc. No. 45]; HSBC Supplemental Memo. In Supp., at 5; Clark Aff., Exh. Q [identifying Trusts] [HSBC NYSCEF Doc. No. 62]; US Bank Supplemental Memo. In Supp., at 4-5; Marcucci Aff., Exh. R [identifying Trusts] [US Bank NYSCEF Doc. No. 64].) In so holding, the court rejects plaintiffs' argument, unsupported by legal authority, that the Trustees' mere receipt of the allegedly false reports provides a basis on which to sustain the allegations with respect to these Trusts. (See Pls.' Memo. In Opp., at 14-15.)
Wells Fargo also contends that the breach of contract allegations concerning remittance reports must be dismissed as to all Wells Fargo Trusts because the Governing Agreements "place the responsibility for preparing and forwarding remittance reports, not on Wells Fargo, but on third parties such as Servicers." (Wells Fargo Supplemental Memo. In Supp., at 2 [emphasis in original].) In opposition, however, plaintiffs identify provisions in the Governing Agreements for the Wells Fargo Trusts pursuant to which the Trustee is required to "prepare and post" a report on its investor reporting website based upon the "Remittance Report." (Pls.' Memo. In Opp., at 14; Allen Aff., Exh. 3 [see e.g. ABFC 2006-OPT1 PSA, § 4.06 (a)] [NYSCEF Doc. No. 41].) At the motion to dismiss stage, such provisions provide sufficient support for plaintiffs' allegation that Wells Fargo breached a contractual obligation by failing "to make accurate remittance reports available to certificateholders. . . ." (Wells Fargo Complaint, ¶ 441.)
With respect to the remaining Trusts, defendants contend that plaintiffs fail to allege any breach with respect to the Trustees' obligations as to remittance reports because, under the Governing Agreements, the Trustees' "contractual duties were limited to 'forwarding' or 'making . . . available' Remittance Reports prepared by other parties (or in some cases, taking substantive data provided by other parties and putting it into the form of a report)." (Defs.' Joint Memo. In Supp., at 16 [ellipses in original]; see Bank of America Complaint, ¶ 85; BNYM Complaint, ¶ 96; Deutsche Bank Complaint, ¶ 84; HSBC Complaint, ¶ 84; US Bank Complaint, ¶ 89; Wells Fargo Complaint, ¶ 86.) Defendants thus argue that plaintiffs "do not and cannot allege that Defendants had any responsibility for the accuracy or completeness of disclosures in the reports." (Id.) The court holds that questions of law and fact preclude this court from determining, on this motion to dismiss, whether the Trustees complied with their obligations as to the remittance reports by forwarding or distributing information to investors if the Trustees knew the information was false, as plaintiffs allege. These remittance report claims are accordingly maintainable at the pleading stage.
3. Post-Event of Default Breaches of Contract
Defendants also seek dismissal of plaintiffs' claims that defendants breached post-EOD contractual obligations. Defendants contend (i) that plaintiffs do not plead the occurrence of an EOD, as defined by the Governing Agreements, and (ii) that plaintiffs do not plead that defendants had actual knowledge or written notice of an EOD which, under the Governing Agreements, is required to trigger the Trustees' post-EOD duties. (Defs.' Joint Memo. In Supp., at 19.)
A. Occurrence of an EOD (PSA Trusts)
The court first addresses whether plaintiffs adequately plead the existence of an EOD for the PSA Trusts. The provisions of the Governing Agreements for the PSA Trusts, which define an EOD based upon a servicing failure, generally provide:
The definitions of EOD in the Governing Agreements for the PSA Trusts are materially different from the definitions of EOD in the Governing Agreements for the Indenture Trusts. The occurrence of an EOD for the Indenture Trusts is addressed separately below.
"'Event of Default', wherever used herein, means any one of the following events: . . . the failure on the part of the Servicer duly to observe or perform in any material respect any other of the covenants or agreements on the part of the Servicer set forth in this Agreement which continues unremedied for a period of forty-five days . . . after the earlier of (i) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Depositor or by the Trustee, or to the Servicer, the Depositor and the Trustee by Certificateholders entitled to at least 25% of the Voting Rights in the Certificates and (ii) actual knowledge of such failure by a Servicing Officer of the Servicer . . ."(Allen Aff., Exh. 22 [e.g. Bank of America, CBASS 2006-CB9 PSA, § 7.01(b)] [NYSCEF Doc. No. 60].)
This provision is provided as an example. Its requirements are discussed further below. (See n 13, infra.) To the extent that there are differences between the provisions which are relevant to this motion, they are discussed below.
Defendants contend that plaintiffs do not plead that EODs occurred because (i) plaintiffs do not sufficiently allege servicer breaches; (ii) plaintiffs do not plead written notice to the servicer of alleged breaches; and (iii) plaintiffs do not plead that the servicer breaches continued unremedied following the servicer's notice of the breaches. (Defs.' Joint Memo. In Supp., at 20-21, 23-24.)
i. Servicer or Master Servicer Breaches
Defendants argue that plaintiffs "fail to plead the specific Servicer or Master Servicer failure that is a necessary predicate of an EOD. Instead, they cite reports they claim reveal misconduct in the servicing industry, and then speculate that misconduct may have occurred in connection with the Trusts at issue." (Defs.' Joint Memo. In Supp., at 20.) As previously discussed with respect to plaintiffs' pre-EOD claims (see Section 2 [B]), plaintiffs allege numerous servicing failures. For the reasons also previously discussed, the court rejects defendants' claim that Commerce Bank requires heightened specificity—i.e., pleading of specific servicing failures. (See Defs.' Joint Memo. In Supp., at 20.) The court holds that plaintiffs' allegations sufficiently plead breach of the servicers' duties within the meaning of the relevant provisions of the Governing Agreements. (See Commerzbank AG v U.S. Bank N.A., 277 F Supp 3d 483, 492-493 [SD NY 2017].)
For similar reasons, the court rejects Wells Fargo's and US Bank's contentions that EODs are not pleaded as to 21 Trusts because plaintiffs do not plead allegations as to the specific servicers for those particular Trusts. (See US Bank Supplemental Memo. In Supp., at 5; Wells Fargo Supplemental Memo. In Supp., at 4.) Plaintiffs' detailed allegations as to servicer breaches for the Wells Fargo and US Bank Trusts, including allegations particular to the individual servicers for a majority of those Trusts, are sufficient at the pleading stage. Plaintiffs' failure to name every servicer for every Trust at issue does not render the pleading insufficient.
ii. Notice to Servicer or Master Servicer
As explained by defendants, the PSAs "list the parties that may give the written notice to the Servicer or Master Servicer that is a necessary predicate to an EOD." These lists "variously include the Depositor, the Securities Administrator, the Trust Administrator, the Trustee, and—in every PSA—Holders like Plaintiffs." (Defs.' Joint Memo. In Supp., at 21.) Defendants argue that plaintiffs do not plead this necessary predicate to an EOD because "Plaintiffs do not allege that any of these enumerated parties gave written notice to the Servicer or Master Servicer, as required for an EOD to occur." (Defs.' Joint Memo. In Supp., at 21 [emphasis in original].) Defendants further argue that "even for those Trusts in which the Trustee was authorized to give notice, the Governing Agreements did not require it to do so." (Defs.' Joint Memo. In Supp., at 22 [emphasis in original].) Plaintiffs contend that "[e]ven if the Court were to consider notice and an opportunity to cure servicer defaults to be a condition precedent to Defendants' post event of default duties—and it is not—the prevention doctrine prohibits Defendants from relying on the failure of that condition." (Pls.' Memo. In Opp., at 23.) In the alternative, plaintiffs contend that an EOD occurs under various Governing Agreements "not only if the servicer receives written notice, but also if the servicer has actual knowledge of its failure to perform its obligations." (Id., at 26 [emphasis in original].)
a. The Prevention Doctrine
"The 'prevention doctrine' stands for the proposition that a party cannot argue that its performance under a contract has not been triggered by a condition precedent, when the party itself prevented the triggering of that condition precedent." (Natl. Credit Union, 410 F Supp 3d at 685.) Federal courts have consistently held that the prevention doctrine precludes RMBS trustees from relying on their failure to give notice to prevent an Event of Default from occurring. (Commerzbank AG v U.S. Bank N.A., 457 F Supp 3d 233, 249 [SD NY 2020] [Commerzbank]; Natl. Credit Union, 410 F Supp 3d at 685; see also Royal Park v HSBC, 109 F Supp 3d at 605.)
Since the submission of these motions, the Appellate Division has twice rejected the approach taken by the federal courts. In Fixed Income, the Court held:
"We reject plaintiffs' apparent argument that, since [the PSA] imposes additional duties on defendant after an Event of Default, defendant may not prevent an Event of Default from occurring by failing to give the notice to cure that would cause the servicers' failure to perform to ripen into an Event of Default. First, as indicated, the PSA bars covenants from being implied in the PSA against defendant. Second, application of the doctrine that a party cannot insist upon a
condition precedent, when its non-performance has been caused by himself requires the party's active conduct preventing or hindering the fulfillment of the condition. Defendant's failure to send a notice to cure to the servicers is not active conduct. Plaintiffs seek to compel positive action by defendant, i.e., the sending of a notice to cure. In any event, under the PSA, 'the Holders of Certificates entitled to at least 25% of the Voting Rights' could have sent notice of the servicers' failure."(157 AD3d at 542-543 [internal citations, quotation marks, and ellipses omitted].) The Appellate Division adhered to this holding in Blackrock in which the Court held that "[a] defendant's failure to send a notice to cure to the servicers is not 'active conduct' within the meaning of the prevention doctrine." (165 AD3d at 527.)
Federal courts have explicitly declined to adopt Fixed Income and Blackrock on this issue. In rejecting the First Department's reasoning, the Court in Commerzbank explained:
"This Court also believes that the New York Court of Appeals would not affirm these First Department decisions. One of the primary purposes of a Trustee in the RMBS context is to evaluate Servicer performance and cure any Servicer deficiencies. It would be counterintuitive to hold that a Trustee could avoid these duties by claiming it did not send written notice to an appropriate deal party when the Trustee is the only party in a position to learn of a servicer breach. Such a proposition would frustrate the intent behind the PSAs' imposition of duties on a Trustee."(Commerzbank, 457 F Supp 3d at 250 [holding, in the alternative, that the prevention doctrine was not the plaintiff's only basis for liability and that an event of default was adequately pleaded]; Natl. Credit Union, 410 F Supp 3d at 685; Pacific Life Ins. Co. v Bank of NY Mellon, 17 Civ 1388 [KPF], 2018 WL 1382105, at *10 [SD NY 2018], reconsideration denied 2018 WL 1871174, at *1-2 [Pacific Life].)
Although the reasoning of the federal courts is compelling, the court is bound to follow the Appellate Division's decisions in Fixed Income and Blackrock. As held below, however, plaintiffs' inability to rely on the prevention doctrine does not require dismissal of their post-EOD claims, as these claims are adequately pleaded.
b. Actual Knowledge of the Servicer
For a significant proportion of the PSA Trusts, the definitions in the Governing Agreements of EOD do not require written notice to the servicer. Rather, an event of default may also occur upon the servicer's failure to cure following the servicer's "actual knowledge" of the servicing failures. (See e.g. Allen Aff., Exh. 22 [EMLT 2004-2 PSA, § 7.01 (a) (ii)] [defining event of default (or termination) as a failure which "continues unremedied for a period of 30 days . . . after the date (A) on which written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Trustee or to the Trustee by any Holders of a Regular Certificate evidencing at least 25% of the Voting Rights or (B) of actual knowledge of such failure by a Servicing Officer of the Servicer"] [emphasis added].)
The PSA cited in the text clearly provides that an EOD is a failure which continues unremedied for a specified period of time after written notice to, or actual knowledge of, the servicer. Most PSAs have substantially similar provisions but define the event of default as a servicing failure which continues unremedied for a specified number of days after "the earlier of (i) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer . . . and (ii) actual knowledge of such failure by a Servicing Officer of the Servicer." (See e.g. Allen Aff., Exh. 22 [CBASS 2006-CB9 PSA, § 7.01 (b)] [emphasis added].) The use of the word "and" in this provision is seemingly inconsistent with the proviso that the event of default is to occur on "the earlier of" two apparently alternative conditions—i.e., [i] written notice, and [ii] actual knowledge. There is authority in this Court that a virtually identical definition of EOD "only requires servicer or master servicer knowledge of its breaches, i.e., no written notice is required. . . ." (See MLRN, 2019 WL5963202, at *6.) To the extent that there is any contractual ambiguity with respect to these provisions, it has not been addressed by the parties and, in any event, is not properly addressed on these motions.
As discussed above (see Section 2 [B]), plaintiffs plead that the servicers prepared written reports that disclosed their servicing failures. These reports strongly support the inference that the servicers had actual knowledge. As also discussed above (id.), plaintiffs plead detailed factual allegations of pervasive, continuing servicing failures. The extent and severity of the pleaded servicing failures, and the public disclosures concerning such failures, including failures of many of the servicers for the Trusts at issue, also give rise to a plausible inference that the servicers had actual knowledge of their own failures. Whether the servicers in fact had actual knowledge is a question for determination upon the ultimate resolution of the action. (See generally Royal Park v HSBC, 109 F Supp 3d at 602-603; see also MLRN, 2019 WL 5963202, at * 6.)
Plaintiffs allege in the complaints that these reports disclosed "the Servicers' breach of their duty to perform prudent and customary servicing practices with respect [to] individual loans within the Trusts"; "the Servicers' breach of their duty to perform prudent foreclosure by detailing the Servicers' excessive delay in foreclosing on properties securing the Trusts' loans and incurring unnecessary legal and administrative expenses due to inaccurate loan documentation"; "the Servicers' breach of their duties with respect to modifying loans, including using trust funds to pay the Servicers' required borrower relief obligations under regulatory settlements, through implementation of modifications on trust-owned mortgages that shifted the costs of the settlement to the trusts and enriched the Servicers unjustly"; and "the Servicers' abuse of their advancing obligations by reflecting the unnecessary and inflated expenses related to delinquent loans." (E.g. Bank of America Complaint, ¶¶ 332-334; BNYM Complaint, ¶¶ 324-326; Deutsche Bank Complaint, ¶¶ 485-487.)
c. Written Notice to the Servicer
It is not disputed that there are Trusts for which the definition of EOD requires written notice to the servicer, without providing that an EOD may also occur upon the servicer's actual knowledge of the failure. (See e.g. Allen Aff., Exh. 22 [BSABS 2007-HE4 PSA, § 8.01 (ii)] [providing that an EOD occurs when a "failure or breach shall continue unremedied for a period of 60 days after the date on which written notice of such failure shall have been given to the Master Servicer by the Trustee or the Depositor, or to the Trustee and the Master Servicer by the Holders of Certificates evidencing not less than 25% of the Voting Rights evidenced by the Certificates"].)
Plaintiffs' complaints allege numerous written disclosures to the servicers of servicing failures. For example, plaintiffs plead that Wells Fargo, in its capacity as servicer and master servicer for a certain Trusts, received written notices from investors regarding servicing failures. (See e.g. Bank of America Complaint, ¶¶ 342, 345; Deutsche Bank Complaint, ¶¶ 488-492; Wells Fargo Complaint, ¶¶ 377-381.) Plaintiffs also plead that "the Servicers have been specifically notified by monoline insurers (companies that guarantee or enhance credit of issuers) of pervasive breaches by the Sellers." (Bank of America Complaint, ¶ 296; see HSBC Complaint, ¶ 285; Wells Fargo Complaint, ¶ 331.) In addition, as discussed above (see Section 2 [B]), plaintiffs plead that the servicers themselves prepared written reports that disclosed extensive servicing failures.
It is unclear whether these written investor notices were specifically addressed any of the Trusts at issue here.
Numerous issues of law and fact exist as to whether these writings, and any other written notices to the servicers that may be identified in discovery, satisfy the notice requirements that must be met, including the requirements as to which parties must provide notice, in order to give rise to servicer failure EODs pursuant to the Governing Agreements. For example, the parties dispute whether the Governing Agreements for certain Trusts merely authorize the Trustee (as defendants claim), or require the Trustee (as plaintiffs claim), to give written notice to the servicer of breaches. (Defs.' Joint Memo. In Supp., at 22; Pls.' Memo. In Opp., at 24.) The Agreements provide that the servicer's cure period runs from the date on which written notice of breach, requiring the same to be remedied, "shall have been given" to the servicer or master servicer by the trustee or depositor or to the trustee and servicer or master servicer by the holders of certificates having at least 25% of the voting rights. (Defs.' Joint Memo. In Supp., at 22 [citing BSABS 2007-HE4 PSA, § 8.01 (ii)].) It is noted that there is substantial authority that the phrase "shall have been given" does not impose a mandatory obligation to give written notice but merely defines an event of default (Fixed Income, 157 AD3d at 542) or designates the trustee as one of the parties permitted to give notice. (Blackrock, 165 AD3d at 527; National Credit Union Admin. Board v U.S. Bank N.A., 18 Civ 11366 [LLS], 2020 WL 4226689, * 5 [SD NY 2020] [following Fixed Income and Blackrock].)
The PSA EOD provision is quoted in the trial court opinion (2017 WL 2870052, at *4).
On these motions to dismiss, however, the above and other issues regarding the notice requirements need not be resolved, as plaintiffs' allegations are sufficient to plead written notice. In so holding, the court notes that defendants cite no authority that supports their contention that plaintiffs' claims are not adequately pleaded because they fail "to plead that Defendants received written notice of specific EODs." (Defs.' Joint Memo. In Supp., at 25.) On the contrary, as discussed above, plaintiffs need not plead loan specific breaches or servicing failures. Similarly, they need not plead satisfaction of the written notice requirements on a trust-by-trust basis.
The court notes that there is authority that the requirement in the Governing Agreements that written notice of breaches be given to servicers is satisfied, for pleading purposes, by the "Servicers' own statements in annual assessments" as well as by letters from the trustee to the servicers about "imprudent servicing." (Western, 2020 WL 6534496, at *9.)
iii. Servicer or Master Servicer Breaches Continued Unremedied
Defendants further argue that an EOD is not alleged because plaintiffs "have not pled that the purported breaches by the Servicers or Master Servicers either continued unremedied after the (unalleged) giving of notice, or would have continued unremedied had notice been given." (Defs.' Joint Memo. In Supp., at 23-24.) As held above, plaintiffs sufficiently plead pervasive and continuing servicing failures. The pleaded facts also support the inference that the servicers had actual knowledge of these failures and allowed them to continue unremedied.
The court accordingly holds that plaintiffs adequately plead EODs as to the PSA Trusts.
B. Occurrence of an EOD (Indenture Trusts)
As defendants explain, "[u]nlike the PSAs, which define an EOD as arising from breaches by the Servicer or Master Servicer, the Indentures define a Default and an EOD, as relevant here, to encompass only the conduct of the Issuer. . . ." (Defs.' Joint Memo. In Supp., at 24 [citing SAST 2006-3 Indenture, §§ 1.01, 5.01(a)(iv)] [emphasis in original].) Defendants contend that plaintiffs do not plead an EOD for the Indenture Trusts because "Plaintiffs fail to allege any conduct by the Issuer, let alone misconduct or a specific material breach that could give rise to an EOD." (Id. [emphasis in original].) In opposition, plaintiffs do not dispute that the definition of EOD in the Indenture Trusts applies to conduct of the Issuer. Rather, they identify provisions in the Governing Agreements for the Indenture Trusts that require the issuer to "cause the Indenture Trustee or Master Servicer to enforce any of the rights to the Mortgage Loans" and "preserve and defend title to the Trust Estate and the rights of the Indenture Trustee and the Noteholders in such Trust Estate. . . ." (Allen Aff., Exh. 24 [CWHL 2005-HYB9 Indenture, § 3.05 (a) (iii), (iv)] [NYSCEF Doc. No. 62]; see also Pls.' Memo. In Opp., at 27.)
As held above, plaintiffs adequately plead R&W breaches and servicing failures, and the failure of both the Trustees and the servicers or master servicers to pursue remedies on behalf of the Trusts with respect to these breaches. The same factual allegations plead the issuers' failure to cause the Trustees and master servicers or servicers to enforce rights on behalf of Trust, as required by the Indentures. As a federal court has similarly reasoned, these seller and servicer breaches also establish a violation of the issuer's duties under the indenture because, "[a]fter all, if Sellers failed to cure or repurchase defective mortgages, the issuer similarly failed to 'enforce any rights with respect to [the Trust Fund],' as the Indenture required it to do." (Royal Park v HSBC, 109 F Supp 3d at 604-605 [internal quotation marks, brackets, and citations removed]; Phoenix Light SF Ltd. v Bank of NY Mellon, No. 14-CV-10104 (VEC), 2015 WL 5710645, at *5 [SD NY Sept. 29, 2015].)
The court accordingly holds that plaintiffs also plead an EOD under the Governing Agreements for the Indenture Trusts.
The court notes that Bank of America contends that the occurrence of an EOD is not pleaded for a particular Indenture Trust, which defines the "Issuer" "as 'Accredited Mortgage Loan Trust 2005-3,' i.e., the trust itself." (Bank of America Supplemental Memo. In Supp., at 7.) This contention ignores that the Indenture imposes the obligations on the Issuer which is, by definition, the Trust itself. (See Royal Park v HSBC, 109 F Supp 3d at 604.)
C. The Trustees' Knowledge of EODs
The Governing Agreements generally provide that the Trustee's duties are specifically limited, as set forth in the Agreements, "unless an Event of Default known to the Trustee has occurred and is continuing." (Biron Aff., Exh. F [INDX 2005-AR21 PSA, § 8.01] [Deutsche Bank NYSCEF Doc. No. 34].) Put another way, the Trustee's post-EOD duties do not arise until the Trustee has knowledge of the EOD. For most of the Trusts, in order for the Trustee to have knowledge of an EOD under the Governing Agreements, the Trustee must have "actual knowledge" of the EOD. For some Trusts, however, the Trustee is only deemed to have knowledge of the EOD upon receipt of written notice of an EOD.
Specifically, Governing Agreements for certain Trusts provide that "the Trustee shall not be deemed to have knowledge of an Event of Default until a Responsible Officer of the Trustee shall have received written notice thereof." (Kreilkamp Aff., Exh. F [CBASS 2006-CB9 PSA, § 8.02 (h)] [Bank of America NYSCEF Doc. No. 29]; see Houpt Aff., Exh. F [BNYM NYSCEF Doc. No. 34]; Biron Aff., Exh. F; Clark Aff., Exh. F [HSBC NYSCEF Doc. No. 49]; Marcucci Aff., Exh. F [US Bank NYSCEF Doc. No. 52]; Sidman Aff., Exh. F [Wells Fargo NYSCEF Doc. No. 29].)
Here, plaintiffs plead that the Trustees received monthly servicing reports from the servicers which, as addressed in detail above, disclosed numerous servicing failures and disclosed that those failures were continuing unremedied. (See Section 2 [B]; Section 3 [A] [ii] [b], n 14.) Plaintiffs also plead that certain Trustees received notice from the following sources, among others: investor letters and widely publicized notices detailing systematic servicer violations; the Trustees' involvement in government enforcement proceedings and litigation stemming from servicer violations; and issuance by Deutsche Bank of a widely publicized notice to certificateholders and a memorandum to servicers confirming Deutsche Bank's awareness of improper servicing practices. (See Section 2 [B].)
Similar allegations have been held to "create a reasonable expectation that Defendant's Responsible Officers had received written notice of Events of Default in accordance with [the Governing Agreements]. Though they do not prove that Responsible Officers at Defendant had received written notice, such proof is not required at the pleading stage, particularly where—as here—the information may well be 'uniquely in the possession of defendants.'" (Pacific Life, 2018 WL 1382105, at * 9-10 [holding that written notice to the defendant trustee of EODs was adequately pleaded where the plaintiffs alleged the trustee's knowledge of breaches of R&Ws giving rise to the alleged EODs; the trustee's raising of " internal red flags" due to its own exposure; and the trustee's receipt of a "high volume of notices" from certificateholders, monoline insurers, and other parties regarding breaches and systemic concerns] [internal citation omitted].) The court follows this persuasive authority.
In so holding, the court rejects defendants' contention that, according to Commerce Bank, investor letters identifying servicer breaches "do not constitute notice of an EOD, but rather merely 'notice of events that, with time, might ripen into Events of Default.'" (Defs.' Joint Memo. In Supp., at 25, n 8, quoting Commerce Bank, 141 AD3d at 415.) Importantly, in Commerce Bank, the Appellate Division held that a settlement approved by the court "rendered the letter inoperative, i.e., as if never sent." (141 AD3d at 415.) Commerce Bank is therefore not necessarily in conflict with the extensive federal authority discussed above and below in this decision, which upholds pleading of notice or knowledge based on investor letters. In any event, the investor letter was the only written notice pleaded in Commerce Bank whereas, here, plaintiffs plead numerous forms of written notice which disclosed pervasive and continuing servicing failures.
Issues of law and fact exist as to whether these writings, and any other written notices to the Trustees that may be identified in discovery, may ultimately satisfy the written notice requirements for each Trust that requires written notice of an EOD. As in the pleading of notice to the servicers, these issues need not be resolved on this motion, as plaintiffs adequately plead, written notice to the Trustees of EODs.
Having held that written notice is adequately pleaded, the court need not resolve plaintiffs' argument that the written notice of EOD provisions "only pertain to circumstances where the trustee is to be "charged with knowledge" of a default—i.e. where it is to be imputed to have constructive knowledge of defaults of which it did not have actual knowledge." (Pls.' Memo. In Opp., at 33 [emphasis original].) The court does note that BNP Paribas Mortg. Corp. v Bank of Amer., N.A. 778 F Supp 2d 375, 397 (SD NY 2012), on which plaintiffs rely for this argument, appears to be distinguishable. In that case, the defendant argued that written notice was required based on a provision that it "shall not be charged with knowledge of any default under any Facility Document, unless a Trust Officers of the Indenture Trustee receives written notice of such a default." There was, however, a provision elsewhere in the agreement that "expressly imposes a duty on BoA to act if a Trust Officer 'has actual knowledge' of an Event of Default or Potential Event of Default."
The Governing Agreements for the majority of the Trusts do not, however, require written notice. Under such Agreements, "[t]he Trustee shall not be required to take notice or be deemed to have notice or knowledge of any default or Event of Default unless a Responsible Officer of the Trustee shall have actual knowledge thereof. In the absence of such knowledge, the Trustee may conclusively assume there is no such default or Event of Default." (Kreilkamp Aff., Exh. H [BSABS 2007-HE4 PSA, § 9.01(d)(iv)] [emphasis added] [Bank of America NYSCEF Doc. No. 29]; see Houpt Aff., Exh. H [BNYM NYSCEF Doc. No. 36]; Biron Aff., Exh. H [Deutsche Bank NYSCEF Doc. No. 36]; Marcucci Aff., Exh. H [US Bank NYSCEF Doc. No. 54].)
The court agrees with plaintiffs that GSAA 2005-15 only requires the Trustee's actual knowledge of an EOD. (Pls.' Memo. In Opp., at 34.) This Trust was classified by HSBC as a Trust requiring written notice to the Trustee. The relevant provision for the Trust provides that "unless a Responsible Officer of the Trustee has actual knowledge of the occurrence of a Master Servicer Event of Default or an Event of Default, the Trustee shall not be deemed to have knowledge of a Master Servicer Event of Default or an Event of Default, until a Responsible Officer of the Trustee shall have received written notice thereof." (Clark Aff. In Supp., Ex. F at 5 [GSAA 2005-15 § 8.03 (h)].) This provision clearly only requires written notice in the absence of actual knowledge.
As addressed at length in this decision, plaintiffs plead the Trustees' knowledge of continuing servicing failures. (See Section 2 [B].) These allegations also support the inference that the Trustees had actual knowledge of EODs arising from those continuing, uncured servicing failures. The finding that plaintiffs sufficiently plead written notice of EODs also supports a finding that plaintiffs adequately plead the Trustees' actual knowledge of EODs.
There are also Trusts, separately identified by defendants, with Governing Agreements that provide that the Trustee has knowledge of an EOD upon either "actual knowledge" or "written notice." (Kreilkamp Aff., Exh. G [Bank of America NYSCEF Doc. No. 29]; Houpt Aff., Exh. G [BNYM NYSCEF Doc. No. 35]; Biron Aff., Exh. G [Deutsche Bank NYSCEF Doc. No. 35]; Clark Aff., Exh. G [HSBC NYSCEF Doc. No. 50]; Marcucci Aff, Exh. G [US Bank NYSCEF Doc. No. 53]; Sidman Aff., Exh. G [Wells Fargo NYSCEF Doc. No. 30].) The court has held above that plaintiffs sufficiently plead the Trustees' actual knowledge of EODs and written notice to the Trustees. Thus, under these Governing Agreements, the Trustees' knowledge of EODs is adequately pleaded.
A number of federal courts have held that allegations similar to those here are sufficient to plead the defendant trustee's notice of EODs. For example, in Royal Park Investments SA/NV v Deutsche Bank Natl. Trust Co. (2016 WL 439020, at * 8), the Court held that the "Plaintiff's allegations of widespread RMBS abuse detailed above are sufficient to allow the court to draw the reasonable inference that Defendant had knowledge of events which would trigger its duty to provide notice and adequately plead the requisite knowledge." ([internal quotation marks, citation, and brackets omitted].) In Phoenix Light SF Ltd. v Deutsche Bank Natl. Trust Co. (172 F Supp 3d 700, 715-716 [SD NY 2016]), the Court held, with respect to certain trusts, that the defendant trustee's "actual knowledge" of EODS was pleaded "by describing [the trustee's] involvement in RMBS litigation and receipt of notices from monoline insurers who were pursuing actions against servicers, as well as alarming rates of default and rating downgrades." With respect to other trusts, the Court further held that the trustee's "actual notice" of EODs was pleaded based on allegations "that the Association of Mortgage Investors notified all major RMBS trustees, including [the trustee], about the abuses in servicing and monitoring of RMBS" and "that [the trustee] received instructions from institutional investors in 2011 about the need to investigate loan pools." In Royal Park Investment SA/NV v Bank of New York Mellon (1:14 Civ 6502 [GHW], 2016 WL 899320, at * 6 [SD NY 2016], the Court held the plaintiff pleaded the trustee's actual knowledge of EODs where the plaintiff "relie[d] on allegations concerning (1) news reports and media coverage, congressional testimony, and governmental investigation regarding systematic loan servicing abuses; (2) governmental investigations of specific master servicers and servicers to the trusts at issue; (3) [the trustee's] involvement in many legal actions in which it was an RMBS trustee in foreclosure actions and bankruptcy proceedings; (4) governmental enforcement actions against many of the specific master servicers and servicers of the trusts at issue; and (5) widespread delinquencies and staggering losses suffered by the trusts at issue." In Fixed Income Shares: Series M v Citibank N.A., 130 F Supp 3d 842, 856 [SD NY 2015]), the Court held that the complaint pleaded the defendant trustee's actual knowledge of EODs by alleging the trustee's "involvement in enforcement actions and other litigation stemming from servicers' violations with respect to other trusts"; the trustee's "receipt of written notice from investors in other trusts, for which it also served as the trustee, of the systemic servicing violations by the same entities that service the Trusts at issue here"; and the trustee's "publishing of the servicers' servicing reports and monthly remittance reports, which 'detailed the Trusts' increasing loan modifications, staggering losses, and write-downs due to the poor credit quality of the loans, but did not reflect the servicers' actions to enforce the sellers' repurchase obligations.'" (internal citations omitted.) In Royal Park v HSBC (109 F Supp 3d at 606), the Court held that the complaint pleaded the trustee's actual knowledge of EODs where the plaintiffs alleged that the trustee's "responsible officers' [received] written notice of Seller breaches from monoline insurers and Holders"; the trustee "was the target of government investigations, prosecutions, and settlements with many of the Servicers to the Trusts for the same alleged improper servicing practices"; and the trustee's "responsible officers' [received] written notice from Holders to other RMBS trusts regarding the same servicing violations by the same servicers to the Trusts here."
In sum, plaintiffs must prove at trial or upon summary judgment that defendant Trustees had actual knowledge or received written notice of EODs, where required by the Governing Agreements. At the pleading stage, plaintiffs have met their burden of pleading such knowledge or notice.
4. Breach of Fiduciary Duty and Breach of Conflict of Interest Causes of Action - the Economic Loss Doctrine
Plaintiffs plead a second cause of action against defendants other than US Bank and a third cause of action against US Bank for breach of fiduciary duty. This cause of action alleges that, after a default under the Governing Agreements, defendants' duties "expanded to include a fiduciary duty. . . ." As further alleged, this duty required defendants to investigate breaches of representations and warranties regarding the mortgage loans and breaches of servicer obligations, and to enforce remedies for such breaches. (E.g. Bank of America Complaint, ¶¶ 412-417; BNYM Complaint, ¶¶ 391-396; Deutsche Bank Complaint, ¶¶ 557-562; HSBC Complaint, ¶¶ 400-405; US Bank Complaint, ¶¶ 595-600; Wells Fargo Complaint, ¶¶ 443-448.) Plaintiffs plead a third cause of action against defendants other than US Bank and a fourth cause of action against US Bank for breach of a common law duty to avoid conflicts of interest. Plaintiffs allege that defendants "refrained from enforcing the Trusts' rights for breaches of a representation or warranty regarding the mortgage loans and for Servicer defaults because [they] did not want to jeopardize [their] ongoing and prospective business relationships with the originators, underwriters, sponsors, depositors and Servicers or cause them to retaliate by enforcing similar rights against [defendants] and [their] affiliates." (Bank of America Complaint, ¶¶ 418-423; BNYM Complaint, ¶¶ 397-402; Deutsche Bank Complaint, ¶¶ 563-568; HSBC Complaint, ¶¶ 406-411; US Bank Complaint, ¶¶ 601-606; Wells Fargo Complaint, ¶¶ 449-454.)
Defendants contend that plaintiffs' "fiduciary duty and conflict-of-interest claims rest on allegations that Defendants did not fulfill their contractual duties" and that these claims are accordingly barred by the economic loss doctrine. (Defs.' Joint Memo. In Supp., at 28-29.) Plaintiffs contend that the economic loss doctrine does not apply because the claims "relate to duties that are independent of any of Defendants' contractual duties." (Pls.' Memo. In Opp., at 44 [emphasis in original].) Specifically, plaintiffs argue that pre-EOD, defendants "owed the extra-contractual duty to avoid conflicts of interests with the Trusts" and "a fiduciary duty to perform basic, nondiscretionary, ministerial functions." (Id.) Plaintiffs argue that post-EOD, defendants had an "independent duty to act 'as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.'" (Id. [quoting complaints].) Plaintiffs also argue that "the claims are not barred by the economic loss doctrine under the rule that 'in claims against professionals [such as Defendants], [a] legal duty independent of contractual obligations may be imposed by law as an incident to the parties' relationship. Professionals . . . may be subject to tort liability for failure to exercise reasonable care, irrespective of their contractual duties, and irrespective of the economic loss doctrine.'" (Id., quoting Royal Park v HSBC, 109 F Supp 3d at 599 [plaintiffs' brackets and ellipses].)
Under the economic loss doctrine, "a plaintiff cannot seek damages by bringing a tort claim when the injury alleged is primarily the result of economic injury for which a breach of contract claim is available." (Natl Credit Union, 410 F Supp 3d at 687 [internal quotation marks, citations, and brackets omitted] [applying New York law].)
Here, the alleged pre-EOD fiduciary duty claims are not maintainable. As discussed at the outset of this decision, the duties of Trustees under the Governing Agreements prior to an event of default to perform non-discretionary, ministerial acts with due care are not considered "fiduciary" duties. Moreover, plaintiffs' pre-EOD claims are barred by the Appellate Division's categorical holding in Commerce Bank that an RMBS trustee has no pre-EOD duty to monitor other parties or to "nose to the source" in order to determine whether servicer EODs or other PSA breaches have occurred. (141 AD3d at 415-416.) As plaintiffs' pre-EOD fiduciary duty claims are, by their terms, based on the Trustees' failure to investigate—in effect, nose to the source—they are not maintainable. In contrast, the post-EOD fiduciary duty claims based on failure to investigate are, at the pleading stage, maintainable.
Plaintiffs' pre and post-EOD conflict of interest claims are also maintainable. These claims that the Trustees failed to enforce the Trusts' rights against securitizers or servicers are not based merely on the existence of a "mutually beneficial" relationship between the Trustees and such entities but, rather, on the Trustees' alleged concern that if they enforced claims against those entities, the securitizers and servicers, in turn, would enforce similar claims against the Trustees when the Trustees or their affiliates were acting in the capacity of securitizers or servicers. The complaints thus allege "the "quid pro quo situation" that the Appellate Division has held supports maintenance of a tort claim against Trustees. (See Commerce Bank, 141 AD3d at 416; Royal Park v HSBC, 109 F Supp 3d at 598.)
5. Violation of the Streit Act
Plaintiffs plead a fourth cause of action against defendants other than US Bank and a fifth cause of action against US Bank, only with respect to the PSA Trusts, under the Streit Act, NY Real Property Law §§ 125 (1) and 126 (1). These sections provide that real estate trust indenture agreements must contain provisions requiring trustees to exercise care in the event of default. Specifically, plaintiffs allege that defendants violated the Streit Act, after the occurrence of EODs, by, among other things, failing to enforce sponsors or originators' repurchase obligations and failing to remedy servicer failures. (Bank of America Complaint, ¶¶ 424-430; BNYM Complaint, ¶¶ 403-409; Deutsche Bank Complaint, ¶¶ 569-575; HSBC Complaint, ¶¶ 412-418; US Bank Complaint, ¶¶ 607-613; Wells Fargo Complaint, ¶¶ 455-461.)
Plaintiffs statutory claims against the Trustees of the PSA Trusts are pleaded only under the Streit Act, not under the TIA. Plaintiffs' claims against the Indenture Trust are pleaded only under the TIA. (See Blackrock Allocation Target Shares: Series S Portfolio v Wells Fargo Bank, N.A., 247 F Supp 3d 377, 404 [SD NY 2017] [holding that the Streit Act does not apply to RMBS Indenture Trusts].)
Defendants contend that the Streit Act does not apply to RMBS. (See Defs.' Joint Memo In Supp., at 31.) Even assuming that it does, courts have consistently held that section 126 (1) "requires only that trust instruments include certain provisions, and does not itself impose any affirmative duties on trustees." (E.g. Pacific Life, 2018 WL 1382105, at *15 [internal quotation marks and citations omitted] [collecting authorities].) Where, as here, a plaintiff has "not alleged that Defendant accepted a deficient trust instrument," the Section 126 (1) claim fails because "Section 216(1) imposes no further duty." (Id.; Blackrock Allocation Target Shares: Series S. Portfolio v Wells Fargo Bank, N.A., 247 F Supp 3d 377, 404 [SD NY 2017] [same].) Plaintiffs Streit Act claims will accordingly be dismissed.
6. Violation of the Trust Indenture Act
Plaintiffs plead a fifth cause of action against defendants other than US Bank and a sixth cause of action against US Bank for violation of sections 315 (a)-(c) of the TIA. (Bank of America Complaint, ¶¶ 431-441; BNYM Complaint, ¶¶ 410-420; Deutsche Bank Complaint, ¶¶ 576-586; HSBC Complaint, ¶¶ 419-429; US Bank Complaint, ¶¶ 614-624; Wells Fargo Complaint, ¶¶ 462-472.) Section 315 (a) (1) (15 USC § 77ooo [a] [1]) provides that "the indenture trustee shall not be liable except for the performance of such duties as are specifically set out in such indenture." Section 315 (b) (15 USC § 77ooo [b]) provides that "[t]he indenture trustee shall give to the indenture security holders . . . , notice of all defaults known to the trustee" within a specified time period. Section 315 (c) (15 USC § 77ooo [c]) provides that "[t]he indenture trustee shall exercise in case of default . . . such of the rights and powers vested in it by such indenture, and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs."
Plaintiffs allege that defendants violated section 315 (a) by failing to perform the duties specifically set out in the indenture. (E.g., Bank of America Complaint, ¶ 434.) They further allege that defendants violated sections 315 (b) and (c), respectively, by failing to notify bondholders of defaults and by failing, post-EOD, to enforce repurchase obligations of the sellers and to remedy servicer failures. (E.g. Bank of America Complaint, ¶¶ 436-437.) Defendants argue that the TIA provides no private right of action, and that the TIA does not impose duties absent an EOD, which plaintiffs do not adequately allege. (Defs.' Joint Memo. In Supp., at 3, 33-34.)
The court follows persuasive federal authority that "a private right of action is implied under Sections 315 (b) and (c), but not under Section 315 (a)." (Blackrock v Wells Fargo, 247 F Supp 3d at 401 [emphasis in original].) Plaintiffs claims section 315 (a) of the TIA will accordingly be dismissed.
The court reaches a contrary result as to defendants' alternative contention that plaintiffs do not adequately plead claims under sections 315 (b) and (c). As held above, plaintiffs adequately plead pre and post-EOD defaults under both the PSA and Indenture Trusts. Plaintiffs accordingly also plead claims under sections 315 (b), which imposes the obligation to give notice of defaults, and (c), which imposes post-EOD duties on the Trustees. (See Royal Park v HSBC, 109 F Supp 3d at 612.)
7. Violation of Regulation AB
Plaintiffs plead a sixth cause of action against defendants other than US Bank and a seventh cause of action against US Bank for violation of SEC Regulation AB. (Bank of America Complaint, ¶¶ 442-446; BNYM Complaint, ¶¶ 421-425; Deutsche Bank Complaint, ¶¶ 587-591; HSBC Complaint, ¶¶ 430-434; US Bank, ¶¶ 625-629; Wells Fargo Complaint, ¶¶ 473-477.) Plaintiffs plead that Regulation AB required defendants "to report to the SEC that all servicing requirements had been met, that there were no breaches of representations and warranties, that the underlying properties securing the loans held by the Trust[s] had been maintained as required by the relevant transaction agreements, and that pool assets and related documents were safeguarded." (E.g. Bank of America Complaint, ¶ 443.) Plaintiffs further allege that defendants breached this obligation by failing to disclose the sellers' failure to transfer complete mortgage files to the Trusts and their breaches of representations and warranties. (E.g. id., ¶ 444.)
Defendants contend that SEC Regulation AB "does not create a private right of action" and, in the alternative, that plaintiffs fail to plead a breach of the Regulation "because the disclosure obligations Plaintiffs advocate are nowhere to be found in the actual text of the regulation." (Defs.' Joint Memo. In Supp., at 34; 34-35, n 14.) Defendants also argue that many of the Governing Agreements require servicers, master servicers or custodians, not the Trustees, to supply Regulation AB reports (id., at 35), and that the Regulation does not apply to deals that closed before January 1, 2006. (Id., at 34.) Defendant US Bank argues that some of the claims under the Regulation are barred by the statute of limitations. (US Bank Supplemental Memo. In Supp., at 2.) Plaintiffs counter that Regulation AB "presents a similar situation" to the finding of an implied right of action under the TIA. (Pls.' Memo. In Opp., at 55; see Section 6.) They argue that the disclosure and reporting requirements under the Regulation are for the benefit of the investors, and that the duty under the Regulation to file reports "necessarily implies a right to accurate reporting for the beneficiary of the relationship." (Id., at 56.) Plaintiffs further argue that "[w]here the Trustee has failed in a specific fiduciary duty implied by the Regulation, the investor, for whom the Regulation was drafted to benefit [sic], is entitled to enforce that duty." (Id.)
Regulation AB (17 CFR §§ 229.1100-229.1125) "is the source of various disclosure items and requirements for 'asset-backed securities' filings" under the Securities Act of 1933 (15 USC §§ 77a et seq.) and the Securities Exchange Act of 1934 (15 USC §§ 78a et seq.). (17 CFR § 229.1100 [a].) Plaintiffs cite no authority that recognizes a private right of action under Regulation AB. Plaintiffs analogize Regulation AB to the TIA. Significantly, however, they do not point to any provisions, like the provisions in the TIA, which impose requirements to report breaches directly to investors and to perform duties under the indenture. (See TIA provisions, cited in Section 6.) The court accordingly holds that the Regulation AB cause of action must be dismissed. In view of this holding, the court does not reach defendants' remaining objections to the pleading of the cause of action.
8. Violation of UCC Article 9
Plaintiffs plead a seventh cause of action against defendants other than US Bank and an eighth cause of action against US Bank for violation of UCC § 9-207 (a). (Bank of America Complaint, ¶¶ 447-452; BNYM Complaint, ¶¶ 426-431; Deutsche Bank Complaint, ¶¶ 592-597; HSBC Complaint, ¶¶ 435-440; US Bank Complaint, ¶¶ 630-635; Wells Fargo Complaint, ¶¶ 478-483.) Plaintiffs allege that the Indenture Trusts "pledged to [defendants] as the Indenture Trustee[s] collateral including, among other things, the mortgage loans owned by the Indenture Trust[s] and supporting documents, such as the mortgage notes and the mortgages themselves (the 'Collateral') to secure the principal and interest obligations under the Notes that the Indenture Trust[s] issued to investors, including Plaintiffs." (Bank of America Complaint, ¶ 448.) Plaintiffs further allege that, under New York Uniform Commercial Code § 9-207 (a), the Trustees "as secured part[ies] had the duty to exercise reasonable care in the custody and preservation of the Collateral." (Id., ¶ 450.) As also alleged, the Trustees breached that duty by, among other things, "(1) failing to exercise put-back rights as against Sellers for Collateral that failed to comply with such entities' representations and warranties regarding the Collateral and (2) failing to insure that the Servicers of the Collateral properly used the Collateral when the mortgage loan borrowers either became delinquent or defaulted on their debts." (Id., ¶ 451.)
UCC § 9-207 (a) provides that "a secured party shall use reasonable care in the custody and preservation of collateral in the secured party's possession." Defendants contend, and plaintiffs dispute, that only a pledgor has standing to assert a claim under this statute. (Defs.' Joint Memo. In Supp., at 35; Pls.' Memo. In Opp., at 59.) Plaintiffs claim that the Trusts "were created to hold collateral (mortgages and notes), not to protect the entities that delivered the collateral to them . . . , but to protect the investors in mortgage-backed securities." (Pls.' Memo. In Opp., at 59 [emphasis in original].) Plaintiffs cite provisions in the Governing Agreements in which the Trustee declares that it holds or will hold the assets in the Trust Fund "in trust for the exclusive use and benefit of all present and future Certificateholders." (Allen Aff., Exh. 4 [ABFC 2006-OPT1 PSA, § 2.02].) Plaintiffs do not, however, cite any authority which even remotely suggests that RMBS Certificateholders or other non-pledgors with an interest in a Trust Fund have standing to maintain a claim under UCC § 9-207 (a). The court accordingly holds that the UCC cause of action should be dismissed. In view of this holding, the court does not reach Wells Fargo's alternative argument that the UCC claims are time-barred. (Wells Fargo Supplemental Memo. In Supp., at 8.)
9. Good Faith and Fair Dealing Claim Against US Bank
Plaintiffs assert a second cause of action only as to defendant US Bank for violation of the implied covenant of good faith and fair dealing. The second cause of action of the US Bank complaint alleges that US Bank violated the implied covenant of good faith and fair dealing when it "failed to perform its obligations under the Governing Agreements or to act despite its knowledge of the rampant breaches of the Trusts' rights under the Governing Agreements and failed to give notice of defaults under the Governing Agreements." (US Bank Complaint, ¶ 592.) US Bank seeks to dismiss this cause of action on the ground that the "governing agreements prohibit the imposition of implied covenants," and that the implied covenant claim is duplicative of plaintiffs' breach of contract claim. (US Bank Supplemental Memo. In Supp., at 10-11.) In opposition, plaintiffs clarify that they assert the implied covenant claim only with respect to the Indenture Trusts. (Pls.' Memo. In Opp., at 71.)
It is noted that, citing a PSA provision stating that "[n]o implied covenants or obligations shall be read into this Agreement against the Trustee," the Appellate Division held that a cause of action against a RMBS trustee for breach of the implied covenant of good faith and fair dealing should be dismissed. (Fixed Income, 157 AD3d at 542.)
Under New York law, a "cause of action for breach of the implied covenant of good faith and fair dealing cannot be maintained [where] it is premised on the same conduct that underlies the breach of contract cause of action and is intrinsically tied to the damages allegedly resulting from a breach of the contract." (MBIA Ins. Corp. v Merrill Lynch, 81 AD3d 419, 419-420 [1st Dept 2011] [internal quotation marks and citation omitted]; see Amcan Holdings, Inc. v Canadian Imperial Bank of Commerce, 70 AD3d 423, 426 [1st Dept 2010] lv denied 15 NY3d 704; Pacific Life, 2018 WL 1382105, at*13 [same, applying New York law].)
Here, even assuming that the Indenture Trusts do not bar implied covenants, the court holds that plaintiffs' implied covenant claim is based on the same facts and seeks the same remedies as the breach of contract claim. (Compare US Bank Complaint, ¶¶ 591-594 with ¶¶ 559-590.) The implied covenant claim must therefore be dismissed.
10. Statutes of Limitations Defenses Raised by Particular Defendants
Defendants assert that several of plaintiffs' claims are time-barred. First, they argue that IKB S.A.'s claims are time-barred because IKB S.A. sold its securities to IKB AG on November 20, 2008 and these securities were never reassigned to IKB S.A. (Defs.' Joint Memo. In Supp., at 36.) Defendants accordingly conclude that the statute of limitations on these claims expired, at the latest, on November 20, 2014. (Id.) Similarly, defendant US Bank relies on the fact that, on December 4, 2008, IKB AG sold the securities it purchased from IKB S.A. to Rio. (US Bank Complaint, ¶¶ 11-13.) US Bank asserts that, while Rio reassigned claims relating to the securities to IKB AG, it sold 25 securities to third parties and many of the claims are time-barred to the extent they relate to those securities. (US Bank Supplemental Memo. In Supp., at 1.) Further, defendant Deutsche Bank contends that plaintiffs' claims against IndyMac Bank, F.S.B. (IndyMac), Accredited Home Lenders, Inc., or an affiliated entity (Accredited), and NC Capital Corporation, New Century Mortgage Corporation, or an affiliated entity (New Century) are time-barred because they filed for bankruptcy or were placed into receivership more than six years before plaintiffs commenced these actions. (Deutsche Bank Supplemental Memo. In Supp., at 1- 2.) According to Deutsche Bank, the statute of limitations for any claim before the relevant "bar date" has expired, and no claim could accrue after that date. (Id., at 3-4.) In opposition, plaintiffs contend that their claims are subject to class action tolling. (Pls.' Memo. In Opp., at 61-62.) In the alternative, plaintiffs argue that defendants are estopped from relying on the statute of limitations "[b]ecause Defendants are fiduciaries who failed to disclose the misconduct that forms the basis for Plaintiffs' claims. . . ." (Id., at 62.)
The court holds that determination of these timeliness claims requires resolution of factual and legal issues which are not properly addressed on these motions to dismiss. These issues include the extent to which plaintiffs are putative class members of the class actions that have been filed, and the accrual dates of plaintiffs' various claims. As to plaintiffs' estoppel claim, it is well settled that "[a] defendant may be estopped to plead the statute of limitations where plaintiff was induced by fraud, misrepresentations or deception to refrain from filing a timely action." (Kaufman v Cohen, 307 AD2d 113, 122 [1st Dept 2003], quoting Simcuski v Saeli, 44 NY2d 442, 448-449 [1978].) A showing of equitable estoppel thus requires proof "that the defendant made an actual misrepresentation or, if a fiduciary, concealed facts which he was required to disclose, that the plaintiff relied on the misrepresentation and that the reliance caused plaintiff to delay bringing timely action." (See id.) These issues of fact and law are not addressed, or properly determined, on the record of these motions to dismiss. The branch of the motions to dismiss the claims of plaintiffs identified above will accordingly be denied.
11. Defenses Based on Particular Defendants' Roles as Trustee
Wells Fargo contends that Deutsche Bank, not Wells Fargo, is the Trustee for two trusts. (Wells Fargo Supplemental Memo. In. Supp., at 1; Sidman Aff. In Supp., Ex. Q [identifying the Trusts] [Wells Fargo NYSCEF Doc. No. 36].) The parties cite conflicting evidence as to whether Wells Fargo is the successor Trustee for these Trusts. (Wells Fargo Supplemental Memo. In Supp., at 1; Pls.' Memo. In Opp., at 73.) This issue therefore cannot be determined on this record.
Plaintiffs allege claims against US Bank in its role as Owner Trustee for five Indenture Trusts. (US Bank Complaint, ¶¶ 20, 53.) As alleged by plaintiffs, the Owner Trustee is "in general terms, responsible for managing the trust in its role as an issuer of securities." (Id., ¶ 53.) The parties generally dispute the extent of US Bank's obligations as Owner Trustee. (US Bank Supplemental Memo. In Supp., at 8-10; Pls.' Memo. In Opp., at 69-70.) Plaintiffs claim, and US Bank disputes, that US Bank was obligated to take any action necessary to "carry out more effectively the purposes" of the Indenture and to "enforce any of the Mortgage Loans or the Sale and Servicing Agreement." (Pls.' Memo. In Opp., at 70, citing Allen Aff., Exh. 45 [NYSCEF Doc. No. 83] [ACCR 2006-2 Indenture, § 3.05].) The parties do not dispute that this duty is the obligation of the Issuing Entity. (See Allen Aff., Exh. 45.) Rather, their dispute turns on whether US Bank, as Owner Trustee, is responsible or liable for the Issuing Entity's performance of such duty. (See US Bank Supplemental Memo. In Supp., at 9-10; Pls.' Memo. In Opp., at 70.)
The Indentures specify the Owner Trustee's duties, stating: "The Owner Trustee accepts the trusts hereby created and agrees to perform its duties hereunder with respect to such trusts, but only upon the terms of this Agreement and subject to the other Basic Documents." (Allen. Aff., Exh. 43 [NYSCEF Doc. No. 81] [ACCR 2006-2 Indenture, § 8.01].) The parties, however, discuss the terms of the Indentures in a cursory fashion and do not attach the other Basic Documents. The scope of the Owner Trustee's duties therefore cannot be determined on this record, with the following exception. US Bank acknowledges that it had an obligation to provide notice of a servicer event of default if it had actual knowledge of such default, but claims that plaintiffs do not plead actual knowledge. (US Bank Supplemental Memo. In Supp., at 10.) As held above (Section 3 [A] [iii] [c]), the Trustees' knowledge is adequately pleaded. US Bank does not argue that a different pleading standard applies to an Owner Trustee's knowledge. This branch of US Bank's motion will accordingly be denied.
HSBC argues that, because it is a "nominal trustee," it has a "particularly circumscribed contractual role." (HSBC Supplemental Memo. In Supp., at 1.) As explained by HSBC, it is a nominal trustee because of its "particularly limited contractual function as well as an absence of responsibilities as a custodian, securities administrator, or other trust function." (Id., at 2.) HSBC claims that it "is required by the Governing Agreements only to perform discrete ministerial tasks in exchange for a nominal fee . . ." (id.), and that it is not responsible for, among other things, reviewing mortgage files or certifying their completeness, holding mortgage files throughout the life of the Trusts, providing remittance reports, or monitoring servicers. (Id., at 2-3.) While HSBC emphasizes that it has no duties regarding breaches of representations and warranties absent actual knowledge, and that it is not deemed to have knowledge of a particular event of default absent actual knowledge or written notice, it implicitly acknowledges that it does have such duties upon knowledge or notice. (Id., at 3-4.) HSBC does not in fact distinguish itself from the other Trustees in these actions. Nor does HSBC cite any authority that its status as a "nominal trustee" absolves it of any obligations under the Trusts. To the extent that HSBC seeks dismissal of plaintiffs' claims against it on this basis, this branch of its motion will be denied.
ORDER
It is hereby ORDERED that defendants' motions to dismiss are granted to the following extent:
It is ORDERED that plaintiffs' first cause of action for breach of contract against all defendants is dismissed to the extent of dismissing as untimely solely the mortgage loan file claims identified in Section 1 of the above decision; and it is further
ORDERED that plaintiffs' second cause of action against defendants except defendant US Bank and third cause of action against defendant US Bank for breach of fiduciary duty are dismissed to the extent of dismissing plaintiffs' pre-Event of Default claims; and it is further
ORDERED that plaintiffs' fourth cause of action against defendants except defendant US Bank and fifth cause of action against defendant US Bank for violation of the Streit Act are dismissed in their entirety; and it is further
ORDERED that plaintiffs' fifth cause of action against defendants except defendant US Bank and sixth cause of action against defendant US Bank for violation of the Trust Indenture Act are dismissed solely to the extent of dismissing the claims brought under section 315 (a) (15 USC § 77ooo [a]) of the Trust Indenture Act; and it is further
ORDERED that plaintiffs' sixth cause of action against defendants except defendant US Bank and seventh cause of action against defendant US Bank for violation of SEC Regulation AB are dismissed in their entirety; and it is further
ORDERED that plaintiffs' second cause of action brought only against defendant US Bank for violation of the implied covenant of good faith and fair dealing is dismissed in its entirety.
This constitutes the decision and order of the court. 1/27/2021
DATE
/s/ _________
MARCY S. FRIEDMAN, J.S.C.