Ace Securities Corp. Home Equity Loan Trust v. DB Structured Products, Inc.
5 F. Supp. 3d 543
S.D.N.Y.2014Background
- Plaintiff HSBC, as trustee, sues DB Structured Prods. in four RMBS actions for breaches of representations and warranties concerning loans sold to four trusts.
- Actions involve two contracts, MLPA and PSA, governed by New York law, with “sole remedy” provisions limiting remedies to cure or repurchase.
- Plaintiff alleges DBSP discovered numerous breaches during securitization due diligence and/or received notices of breaches, and failed to cure or repurchase.
- Court consolidates briefing across HE3, WM2, HE4, and HE5 actions, addressing similar factual and legal theories.
- DBSP moves to dismiss, arguing sole-remedy clauses preclude damages and that plaintiff failed to plead notice adequacy; plaintiff seeks damages, specific performance, rescission-equivalent relief, and declaratory relief.
- Court holds: sole-remedy provisions do not bar all remedies; rescissory damages may survive; discovery-based theory viable; declaratory judgment claims dismissed with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do sole remedy provisions bar money damages? | Remedies include damages; sole-remedy clause not a complete bar. | Sole remedy requires specific performance; damages unavailable. | Sole remedy provisions do not bar damages entirely; damages may be available in limited fashion. |
| Are rescissory damages available despite the sole remedy clause? | Rescissory damages may be recoverable where equitable relief is unavailable. | Rescissory damages waived by contract; only equitable relief allowed. | Rescissory damages survive at pleading stage; not dismissed at this juncture. |
| Does discovery of breaches by DBSP support claims independent of notices? | Discovery during due diligence triggers cure/repurchase obligations; discovery theory viable. | Only notices trigger obligations; discovery alone insufficient. | Plaintiffs may plead discovery-based breaches; discovery sufficient at this stage to proceed. |
| Is pre-suit notice a condition precedent to enforcement of repurchase obligations? | Notice is a promise to act, not a hard condition; enforcement may proceed without literal notice. | Notice is an express condition precedent delaying enforcement until cure/repurchase window. | Notice is not an express condition precedent; enforcement may proceed based on discovery and MLPA terms. |
Key Cases Cited
- DBALT 2006-OA1, 958 F. Supp. 2d 488 (S.D.N.Y. 2013) (sole remedies and damages considerations in RMBS context)
- ACE Sec. Corp. v. DB Structured Prods., Inc., 977 N.Y.S.2d 229 (N.Y. App. Div. 1st Dep’t 2013) (appellate review on statute-of-limitations and remedies in RMBS)
- Lehman XS Trust, Series 2006-4N v. Greenpoint Mortg. Funding, Inc., 991 F. Supp. 2d 472 (S.D.N.Y. 2014) (discusses discovery and cure/repurchase obligations in RMBS)
- Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006) (strong tradition that contracts may not insulate from damages for fraud)
- Sommer v. Fed. Signal Corp., 79 N.Y.2d 540 (N.Y. 1992) (public policy exception to exculpatory clauses in contracts)
- Five Star Dev. Resort Cmtys. v. iStar RC Paradise Valley, LLC, No. 09 Civ. 2085 (LTS), 2012 WL 4119561 (S.D.N.Y. 2012) (limitations on damages and public policy in contract terms)
- Orix Real Estate Capital Mkts., LLC v. Superior Bank, FSB, 127 F. Supp. 2d 981 (N.D. Ill. 2000) (case on equitable relief and contract remedies)
- Abacus Fed. Sav. Bank v. ADT Sec. Servs., Inc., 18 N.Y.3d 675 (N.Y. 2012) (public policy limits on liability waivers and exculpatory clauses)