Deutsche Alt-A Securities Mortgage Loan Trust, Series 2006-OA1 ex rel. HSBC Bank, USA, National Association v. DB Structured Products, Inc.
958 F. Supp. 2d 488
S.D.N.Y.2013Background
- HSBC Bank USA sues DB Structured Products under RMBS securitization; DBSP moves to dismiss the FAC.
- Two related agreements govern the securitization: the Mortgage Loan Purchase Agreement (MLPA) and Pooling and Servicing Agreement (PSA); DBSP is the sponsor and DECAT acts as depositor with a Trustee and Certificateholders under REMIC I.
- DBSP conducted due diligence on the loan pool; Plaintiff alleges discovery of material RW breaches at closing and thereafter, including numerous loan defects.
- The MLPA and PSA require DBSP to cure or repurchase breaching loans within specific timeframes; the Repurchase Protocol is the sole remedy for RW breaches.
- Six breach notices were sent by the Trustee to DBSP concerning 323 loans; liquidated or foreclosed loans complicate the repurchase question; Plaintiff asserts breach-of-contract and seeks remedies including specific performance and rescissory damages; declaratory relief is also sought but later dismissed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the FAC plausibly states a breach of contract by DBSP. | HSBC can show DBSP's knowledge of RW breaches and failure to cure/repurchase. | DBSP contends the Repurchase Protocol is the sole remedy and notice requirements were not met. | Breach claim survives at this stage. |
| Whether DBSP was sufficiently notified under the Repurchase Protocol. | Notice was prompt and proper under NY law and the PSA/MLPA. | Notice was not prompt/proper given the late and unaffirmed notices. | Notice deemed prompt and proper for pleading purposes. |
| Whether exclusive/remedies clause bars monetary damages. | Remedies can include monetary damages despite a sole remedy clause. | Sole remedy provision precludes separate monetary damages. | Clause does not bar all monetary claims at this stage; need full briefing. |
| Whether rescissory damages are available in lieu of or in addition to contract damages. | Rescission is appropriate where breaches are pervasive and fundamental. | Rescission requires lack of adequate legal remedy; contract remedies may suffice. | Rescissory damages claim survives as an alternative; premature to bar it. |
| Whether declaratory judgment claims are duplicative and should be dismissed. | Declaratory relief could clarify remedies under the Agreements. | Declaratory relief duplicative of coercive contract claims. | Declaratory judgment claims are dismissed. |
Key Cases Cited
- MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 105 A.D.3d 412 (1st Dep’t 2013) (exclusive remedies and contract interpretation guidance under NY law)
- Cont’l Cas. Co. v. Stronghold Ins. Co., Ltd., 77 F.3d 16 (2d Cir. 1996) (contractual remedies and accrual concept in insurance context; breach claims)
- Rubinstein v. Rubinstein, 23 N.Y.2d 293 (N.Y. 1968) (claims and remedies under contract law; exclusive remedy considerations)
- Soroof Trading Dev. Co., Ltd. v. GE Fuel Cell Sys. LLC, 842 F. Supp. 2d 502 (S.D.N.Y. 2012) (willful/gross negligence distinctions and exculpatory clauses not always controlling)
- Morgan Stanley & Co. Inc. v. Peak Ridge Master SPC Ltd., 930 F. Supp. 2d 532 (S.D.N.Y. 2013) (contractual remedies and damages analysis for complex securitization)