Ellington Credit Fund, Ltd. v. Select Portfolio Servicing, Inc.
2011 U.S. Dist. LEXIS 139134
| S.D.N.Y. | 2011Background
- Plaintiffs Ellington Credit Fund and ECF Special Securities sue M&T, SPS, and SPS Affiliates in a diversity action over servicing of REM-IC securitizations.
- PSAs govern servicing duties; SPS served as servicer and M&T as trustee, with ownership interests held by certificateholders.
- Alleged misconduct includes SPS exhausting assets via inflated servicing advances and predatory practices; called out settlements with FTC and Curry actions restricting practices.
- Plaintiffs allege SPS Affiliates participated in schemes to siphon fees and overstate charges; M&T allegedly failed to monitor and disclose breaches.
- Plaintiffs’ FAC asserts breaches of contract, fiduciary duties, and related claims across the eighteen uncalled securitizations and three called securitizations.
- The court granted in part and denied in part defendants’ motions to dismiss, with standing and contract-privity issues central to disposition.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to sue pre-acquisition conduct | Plaintiffs acquired Conti’s Class R certificates in 2004 and thus inherited claims under NY GOL 13-107. | Standing premised on pre-acquisition conduct is lacking for SPS and SPS Affiliates. | M&T standing maintained under §13-107; SPS and SPS Affiliates lack standing for pre-acquisition claims. |
| Effect of no-action clause §6.07 on pre-suit claims | §6.07 pre-suit requirements apply broadly to the PSA and preclude suits absent compliance. | No-action clause should bar the uncalled securitizations’ claims against all defendants. | §6.07 applies to uncalled securitizations; claims barred absent proper compliance; called securitizations carve-out for fraud induced purchases. |
| Breach of PSA vs fiduciary duty claims | Trustee duties extend beyond contract; breach of fiduciary duties supported by monitoring and disclosure failures. | Trustee duties are limited to PSA terms; no independent fiduciary duty arising pre-default. | Breach of PSA claim survives for notice obligation; fiduciary duty claims against M&T and SPS dismissed as duplicative or unfounded. |
| Fraud and related torts versus contract claims | Fraud claims (reporting and clean-up call fraud) are collateral to PSA and pled with particularity. | Fraud claims duplicative of contract or inadequately pled under Rule 9(b). | Reporting fraud dismissed as duplicative; clean-up call fraud dismissed for lack of Rule 9(b) specificity; punitive damages disallowed; fraud claims largely dismissed. |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility pleading standard for Rule 12(b)(6))
- Cruden v. Bank of N.Y., 957 F.2d 961 (2d Cir.1992) (no-action clause can be excused when trustee would sue itself)
- LNC Invs., Inc. v. First Fidelity Bank, N.A., 173 F.3d 454 (2d Cir.1999) (standing for assignees under NY law §13-107 proper for pre-default claims)
- Greenwich Fin. Servs. Distressed Mortg. Fund 3 LLC v. Countrywide Fin. Corp., 603 F.3d 23 (2d Cir.2010) (trustee duties and securitization structures—fiduciary obligations limited pre-default)
- Bluebird Partners, L.P. v. First Fidelity Bank, N.A., 97 N.Y.2d 456 (2002) (New York choice-of-law/assignment principles in securitization context)