247 F. Supp. 3d 377
S.D.N.Y.2017Background
- Five related RMBS actions brought by certificateholders (BlackRock, Royal Park, NCUAB, Phoenix Light, Commerzbank) allege Wells Fargo (Trustee) knew of pervasive seller R&W breaches, missing loan documentation, and servicer misconduct yet failed to enforce repurchase/cure obligations.
- The suits involve 53 trusts governed by either PSAs (41) or Indentures (12); Governing Agreements define Trustee duties and Events of Default (EOD) and limit pre-default trustee duties to contractual/ministerial functions.
- Plaintiffs rely on Trustee internal reports (document exception reports, remittance reports), public disclosures, insurer putbacks, and prior enforcement actions to plead actual knowledge of breaches and occurrence of EODs for many trusts.
- Wells Fargo moved to dismiss on multiple grounds: failure to plead discovery/notice of breaches; contractual preemption of tort claims; absence of TIA private cause of action for PSA trusts; Streit Act inapplicability; NCUAB standing; and statute of limitations for Commerzbank.
- The Court denied dismissal of breach-of-contract claims and many fiduciary/extra-contract tort claims (post‑EOD fiduciary duties, conflict‑of‑interest, ministerial-duty claims), granted dismissal as to certain tort theories (general negligence duplicative of contract, pre‑default fiduciary claims, implied‑covenant claims, Streit Act claims), allowed TIA claims for Indenture trusts (Sections 315(b),(c)) but not 315(a), and granted NCUAB’s derivative‑claim dismissal while preserving its direct claims; Commerzbank’s timeliness challenge was denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of pleading Trustee discovery/knowledge of R&W breaches | Allegations (internal exception reports, remittance metrics, insurer notices, public investigations) plausibly show Wells Fargo discovered breaches and EODs | Plaintiffs plead only generalized suspicion, not loan‑by‑loan discovery; Commerce Bank (1st Dep’t) undermines “nose to the source” duty | Plaintiffs pleaded enough to survive 12(b)(6); loan‑by‑loan proof not required at pleading stage because discovery is needed |
| Breach‑of‑contract claims | Trustee breached duties to notify, require cure/repurchase, and act post‑EOD | Fail for lack of actual discovery and contractual limits on duties | Denied — contract claims survive pleading stage |
| Tort/fiduciary claims and economic‑loss rule | Plaintiffs assert extra‑contract duties (post‑EOD fiduciary duties, ministerial due care, conflict of interest) | Tort claims are duplicative of contract or barred by economic‑loss doctrine; pre‑default duties are only ministerial | Mixed: pre‑default fiduciary and general negligence (duplicative) dismissed; extra‑contract ministerial‑due‑care and conflict‑of‑interest and post‑EOD fiduciary claims survive except to the extent they merely duplicate contractual remedies (economic‑loss limits) |
| Trust Indenture Act (TIA) private right of action | Sections 315(b),(c) imply a private right for investors in Indenture trusts | Sections lack text granting a private remedy; Sandoval/Stoneridge/Armstrong counsel against implying private rights | TIA §315(a) claims dismissed; implied private causes of action under §§315(b) and (c) recognized for Indenture trusts; claims allowed for the 12 Indenture trusts only |
| Streit Act claims (N.Y. Real Prop. Law) | Trustee violated Streit Act duties for PSA trusts by failing to act after EODs | Streit Act §126(1) and §124 do not impose affirmative trustee duties—they only require trust instruments contain certain provisions | Dismissed: Plaintiffs fail to state actionable Streit Act claims |
| NCUAB standing (derivative vs direct) | NCUAB as liquidating agent and beneficial owner may sue derivatively on behalf of NGN trusts or directly after unwinding | Rights to sue were transferred from NGN Trusts to Indenture Trustee (BNYM) via Granting Clause; NGN trusts lack the right to sue so NCUAB cannot bring derivative claims | NCUAB derivative claims dismissed (NGN Trusts assigned away suit rights); NCUAB direct claims allowed to proceed; dismissal without prejudice, leave to move to replead permitted |
| Commerzbank statute of limitations | Ongoing breaches and uncertainties make timeliness a factual issue; London branch/financial base argument | German law (three‑year limitation) applies under NY borrowing statute; claims accrued in Germany and are time‑barred | Dismissal as untimely denied. Court found accrual/location questions not resolvable on pleadings and German limitations not proven at this stage |
Key Cases Cited
- Policemen’s Annuity & Benefit Fund of City of Chi. v. Bank of N.Y. Mellon, 775 F.3d 154 (2d Cir. 2014) (discusses RMBS trust governance and limits on TIA scope)
- AG Capital Funding Partners, L.P. v. State St. Bank & Tr. Co., 11 N.Y.3d 146 (N.Y. 2008) (pre‑default trustee duties limited to ministerial functions and avoiding conflicts)
- Fixed Income Shares: Series M v. Citibank N.A., 130 F. Supp. 3d 842 (S.D.N.Y. 2015) (analyzes implied private right under TIA and extra‑contract tort claims)
- Beck v. Mfrs. Hanover Tr. Co., 218 A.D.2d 1 (N.Y. App. Div. 1995) (post‑default fiduciary duties of trustees broaden toward ordinary fiduciary standards)
- Bluebird Partners, L.P. v. First Fid. Bank, N.A., 85 F.3d 970 (2d Cir. 1996) (recognizes prior precedent supporting implied private rights under the TIA)
- Stoneridge Inv. Partners LLC v. Scientific‑Atlanta, Inc., 552 U.S. 148 (U.S. 2008) (Supreme Court framework for implying private rights of action from statutes)
- Alexander v. Sandoval, 532 U.S. 275 (U.S. 2001) (limits implication of private rights; focuses on statute text and enforcement scheme)