328 F. Supp. 3d 141
S.D. Ill.2018Background
- Ambac, an insurer and trust beneficiary, sued U.S. Bank (trustee) for allegedly failing to enforce remedies against Countrywide/Greenwich and otherwise protect five Harborview RMBS trusts, causing Ambac to pay over $300M in insurance claims.
- Countrywide originated the loans, sold them to Greenwich, which transferred pools into trusts governed by PSAs; Countrywide made representations/warranties and retained/assigned servicing; U.S. Bank was assigned certain enforcement rights as trustee.
- Ambac alleges U.S. Bank knew or should have known of missing loan files, breaches of representations and warranties, and servicing misconduct but failed to investigate, notify beneficiaries, or timely sue/seek repurchases, both pre- and post-Event of Default (EOD).
- U.S. Bank moved to stay under the Colorado River abstention doctrine based on two sets of New York state actions (Countrywide suits and the Blackrock investor suit) and alternatively moved to dismiss certain claims as duplicative, barred by the economic loss rule, or time-barred.
- The Court denied the Colorado River stay (found state suits not parallel to federal action) and granted/denied parts of the dismissal motion: dismissed some fiduciary claims (to the extent duplicative of PSA duties), dismissed Streit Act claims, and dismissed contract claims to the extent they rested on document-certification duties; otherwise decline to dismiss on statute-of-limitations or economic-loss grounds at this stage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Colorado River abstention/stay is warranted based on state actions | Ambac: federal forum appropriate; parallel state suits do not dispose of trustee claims here | U.S. Bank: two sets of state cases together are parallel and justify abstention | Denied — state suits not "parallel"; no substantial identity of parties/issues that would dispose of federal claims |
| Validity of post-EOD breach of fiduciary duty claims (duplication/economic loss) | Ambac: alleges independent fiduciary duty of undivided loyalty post-EOD and extra-contractual duties; damages result from fiduciary breach | U.S. Bank: fiduciary claims duplicate contractual PSA duties and are barred by economic loss rule | Granted in part, denied in part — claims premised on PSA-implied duties to act prudently/good faith dismissed as duplicative; claims alleging independent post-EOD duty of undivided loyalty survive; economic loss rule does not bar those tort claims at pleading stage |
| Whether breach of contract claims accrued before April 11, 2011 are time-barred | Ambac: many breaches (e.g., failure to sue after put-back notice in 2011) give rise to timely claims; not all alleged breaches accrue in 2005–2006 | U.S. Bank: claims based on duties that accrued earlier are barred by six-year limitations | Denied as to claims not plainly time-barred; dismissed only to the extent premised on trustee's 2005 document-certification obligation (those claims accrued in 2005 and are time-barred) |
| Validity of Streit Act claims | Ambac: Streit Act imposes a statutory duty to act prudently post-EOD and supports liability | U.S. Bank: the Act merely requires trusts contain certain provisions; does not create affirmative trustee duties beyond contract | Dismissed — Court follows authority holding §126 requires provisions in instruments but does not impose independent affirmative duties on trustees |
Key Cases Cited
- Colo. River Water Conservation Dist. v. United States, 424 U.S. 800 (1976) (establishes narrow Colorado River abstention doctrine permitting federal stay in exceptional circumstances)
- Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (abstention analysis must be pragmatic and flexible; stay is extraordinary)
- Niagara Mohawk Power Corp. v. Hudson River-Black River Regulating Dist., 673 F.3d 84 (2d Cir. 2012) (abstention disfavored; factors for Colorado River analysis)
- Dittmer v. County of Suffolk, 146 F.3d 113 (2d Cir. 1998) (federal/state proceedings are parallel only when substantially same parties litigate substantially same issues)
- Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382 (1987) (breach of fiduciary duty claim must arise from duty independent of the contract)
- IDT Corp. v. Morgan Stanley Dean Witter & Co., 12 N.Y.3d 132 (2009) (limitations for fiduciary breaches depend on remedy sought and whether fraud is essential)
- ACE Secs. Corp. v. DB Structured Prods., Inc., 25 N.Y.3d 581 (2015) (clarifies accrual for representations-and-warranties/put-back claims in RMBS context)