277 F. Supp. 3d 483
S.D.N.Y.2017Background
- Commerzbank, holder of RMBS certificates from 57 trusts, sues trustees U.S. Bank and Bank of America alleging they failed to monitor, notify, and act on breaches by sponsors, originators, and servicers under the Pooling and Servicing Agreements (PSAs).
- PSAs impose pre-Event of Default (pre‑EOD) duties (review loan files, identify defects, notify and force repurchase/substitution) and post‑EOD duties (exercise powers prudently for certificateholders).
- Plaintiffs allege trustees knew or should have known of widespread servicing and origination misconduct (e.g., robo‑signing, deficient underwriting, improper foreclosures, excessive fees) from repurchase actions, investor letters, governmental reports, and trust performance data.
- Defendants moved to dismiss multiple theories: statute of limitations defenses, failure to plead Events of Default or notice, no‑action clauses for certain trusts, economic‑loss rule, and statutory claims under the Streit Act and the Trust Indenture Act.
- The court applied Ohio choice‑of‑law principles given transfer from the Southern District of Ohio, but held limitations issues largely not resolvable on a motion to dismiss; many claims were found timely or factual for later resolution.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Statute of limitations | Claims timely under Ohio law or Germany accrual; factual inquiry on plaintiffs' knowledge | Claims barred for trusts with certificates sold long before suit | Most limitations defenses cannot be resolved on a motion to dismiss; many claims survive; Ohio law applies for U.S. Bank, New York borrowing statute analysis would not defeat timeliness at pleading stage |
| Post‑EOD duty / Event of Default | Trustees had knowledge (or reason to know) of breaches; prevention doctrine bars relying on trustees' own failure to give notice | Complaint fails to plead required notice to servicer or servicer’s failure to cure, so no Event of Default | Court rejects dismissal: prevention doctrine and allegations (investor letters, repurchase suits, public reports) plausibly show trustees’ knowledge and notice; post‑EOD claims survive at pleading stage |
| Pre‑EOD duty (repurchase/representations) | Need not identify loan‑by‑loan specifics at pleading stage; facts plausibly infer breaches and trustees’ constructive/actual knowledge | Complaint fails to allege trustees’ actual or written notice of specific loan breaches | Pre‑EOD contract and related tort claims survive; pleading is adequate because detailed loan data is largely in defendants’ control and complaint alleges specific indicia of breaches |
| No‑action clauses (17 trusts) | Demand on servicer or administrator would be futile given aligned interests; Cruden exception should apply | PSAs require pre‑suit demand on third‑party trust/securities administrators; no‑action clauses bar suit absent that demand | Claims dismissed as to the 17 trusts: no‑action clauses construed strictly, Cruden does not excuse failure to demand a non‑trustee administrator |
Key Cases Cited
- Diffley v. Allied‑Signal, Inc., 921 F.2d 421 (2d Cir.) (choice‑of‑law for limitations in diversity cases)
- Van Dusen v. Barrack, 376 U.S. 612 (U.S.) (transferor court choice‑of‑law rules control after § 1404(a) transfer)
- Burger King Corp. v. Rudzewicz, 471 U.S. 462 (U.S.) (minimum contacts and fair play for personal jurisdiction)
- BlackRock Allocation Target Shares v. Wells Fargo Bank, N.A., 247 F.3d 377 (S.D.N.Y.) (discussing pleading sufficiency in RMBS trustee cases)
- Bank of N.Y. v. Tyco Int’l Group, S.A., 545 F.Supp.2d 312 (S.D.N.Y.) (prevention doctrine prevents a party from insisting on a condition precedent it caused)
- Cruden v. Bank of New York, 957 F.2d 961 (2d Cir.) (no‑action clause exception when asking trustee to sue itself is absurd)
- Ret. Bd. of Policemen’s Annuity & Ben. Fund v. Bank of N.Y. Mellon, 775 F.3d 154 (2d Cir.) (TIA does not impose obligations on RMBS trustees)
- Hydro Investors, Inc. v. Trafalgar Power, Inc., 227 F.3d 8 (2d Cir.) (professional duty exception to economic loss rule)
- Royal Park Invs. SA/NV v. HSBC Bank USA, N.A., 109 F.Supp.3d 587 (S.D.N.Y.) (trustee duties, prevention doctrine, and extra‑contractual fiduciary duties)
- Cargill, Inc. v. JWH Special Circumstance LLC, 959 A.2d 1096 (Del. Ch.) (Delaware law on contracting parties’ ability to define duties)