Commerce Bank v. Bank of New York Mellon
141 A.D.3d 413
| N.Y. App. Div. | 2016Background
- Plaintiffs (Commerce Bank and Knights of Columbus) are certificateholders in RMBS trusts who sued Bank of New York Mellon (BNY) as trustee, alleging breaches of PSA duties, negligence, and breach of fiduciary duty arising from mortgage- and servicing-related failures.
- Defendant admits contractual duties to review/inventory mortgage files and make certifications, but challenges plaintiffs’ pleadings as not tied to specific loans/trusts.
- Lower courts granted and denied various parts of BNY’s motions to dismiss; this appeal addresses multiple pleading defects and statutory/contractual interpretation issues under the PSAs.
- Key disputed PSA provisions include section 2.01(c) (assignment language/opinions of counsel), section 2.03(c) (notice of discovered breaches of reps/warranties), section 7.03(b)/8.02(viii) (notice of Events of Default and Trustee knowledge).
- Plaintiffs also asserted extracontractual duties (pre-default ministerial duties to monitor/notify; conflicts of interest) relying on AG Capital and related authority; settlement approvals in prior Bank of N.Y. Mellon litigation affected some claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Contract claim based on PSA §2.01(c) (assignment language/opinions of counsel) | §2.01(c) does not clearly excuse trustee from ensuring assignment language/form/recording; BNY breached these duties | §2.01(c) and opinions of counsel excused obligations; pleading insufficient | Denied dismissal: §2.01(c) is ambiguous, plaintiffs’ claim survives |
| Contract claim based on PSA §2.03(c) (notice of discovered reps/warranties breaches) | Trustee failed to give prompt notice upon discovering material breaches affecting certificateholders | Plaintiffs did not allege BNY discovered breaches covered by §2.03(a) | Granted dismissal: plaintiffs did not allege discovery of the specified reps/warranties breaches |
| Failure to give notice of Event of Default under §§7.03(b)/8.02(viii) | Letter from Gibbs & Bruns put trustee on notice of Events of Default; BNY failed to notify certificateholders | §8.02(viii) requires written notice to a Responsible Officer; Gibbs & Bruns letter was not notice of an Event of Default and settlement rendered it inoperative | Granted dismissal: no qualifying written notice alleged; prior settlement nullified the letter |
| Negligence claims alleging duty to monitor/notify others’ breaches (pre-default ministerial duties) | Trustee had noncontractual duty to detect/notify certificateholders of others’ failures and systemic servicing misconduct | Such monitoring is discretionary and not a basic ministerial function; claims are impermissibly seeking monitoring duties | Partial dismissal: negligence claims based on monitoring/"nosing to the source" dismissed as not ministerial; other negligence theories survive where appropriate |
| Breach of fiduciary duty (pre-default conflict of interest) | Trustee had fiduciary duty to avoid conflicts; BNY acted for its own or other parties’ interests | Allegations are conclusory; relationship alone does not establish a conflict or quid pro quo | Dismissed: Knights’ conflict allegations conclusory; Commerce Bank’s facts insufficient to show conflict; some claims precluded by prior settlement |
| Post-default fiduciary duties | After default trustee owed elevated fiduciary duties and breached them | No Event of Default occurred, so no post-default duties arose | Dismissed: post-default fiduciary claims fail because no Event of Default alleged occurred |
Key Cases Cited
- Retirement Bd. of Policemen's Annuity & Benefit Fund of City of Chicago v. Bank of N.Y. Mellon, 775 F.3d 154 (2d Cir.) (loan-by-loan and trust-by-trust proof required for class standing)
- AG Capital Funding Partners, L.P. v. State St. Bank & Trust Co., 11 N.Y.3d 146 (N.Y.) (indenture trustees owe pre-default ministerial duties to note holders)
- Matter of Bank of N.Y. Mellon, 127 A.D.3d 120 (1st Dep't) (approval of settlement and its effect on related claims)
- Ellington Credit Fund v. Select Portfolio Servicing, Inc., 837 F. Supp. 2d 162 (S.D.N.Y.) (treatment of PSAs/indentures and trustee duties)
- Beck v. Manufacturers Hanover Trust Co., 218 A.D.2d 1 (1st Dep't) (pre-default duty to avoid conflicts is fiduciary in nature)