1:14-cv-09928
S.D.N.Y.May 18, 2015Background
- NCUA sued U.S. Bank NA and Bank of America NA (trustees) for breaches of duties under PSAs governing 82 RMBS trusts after five corporate credit unions (CCUs) failed and NCUA became their liquidating agent.
- The CCUs originally held ~$5.3 billion in RMBS certificates; NCUA re-securitized certificates from 74 of the 82 trusts into NGN Trusts, Delaware statutory trusts that issued NGNs guaranteed by NCUA and backed by U.S. credit.
- NCUA retained certain Owner Trust Certificates in the NGN Trusts and notified NGN investors it was pursuing claims arising from the underlying RMBS.
- Plaintiffs sued trustees for alleged failures to perform PSA duties; defendants moved to dismiss principally arguing NCUA lacks standing for certificates moved into NGN Trusts.
- The Amended Complaint did not allege that NCUA retained express authority to assert the PSAs’ claims after transferring the certificates to independent NGN Trusts, nor did it plead the particularized derivative-demand facts required by Rule 23.1.
- The Court dismissed NCUA’s claims as to the re-securitized certificates (74 trusts) for lack of standing, and gave NCUA one opportunity to replead limited to 75 pages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether NCUA has statutory authority under 12 U.S.C. § 1787 to sue on behalf of NGN Trusts after re-securitization | NCUA: its broad powers as liquidating agent allow it to bring claims on behalf of NGN Trusts | Defendants: transferring assets into separate statutory trusts divested NCUA of standing to assert PSA claims | Held: Rejected NCUA’s § 1787 argument; statute does not authorize suing on behalf of separate statutory trusts absent retained rights pled in complaint |
| Whether NCUA has third-party beneficiary standing to enforce PSAs via NGN Indentures | NCUA: as holder of NGN Owner Certificates and guarantor, it is a third-party beneficiary entitled to sue | Defendants: NCUA is only twice-removed (NCUA→NGN Trusts→RMBS trusts); PSAs limit benefits to direct certificateholders | Held: Rejected; NCUA is too remote and PSAs do not extend third-party beneficiary status beyond direct holders |
| Whether NCUA may proceed derivatively on behalf of NGN Trusts without particularized demand allegations | NCUA: seeks derivative relief (or alleges demand futility) | Defendants: NCUA failed to plead demand or futility with the particularity required by Rule 23.1 | Held: Rejected; complaint pleads recovery would benefit NCUA exclusively and fails Rule 23.1 pleading requirements for a derivative suit |
| Whether the Court may resolve other substantive statutory/tort claims now | NCUA: opposes dismissal of other claims on merits | Defendants: urged dismissal of statutory and tort claims | Held: Court declined to resolve remaining substantive defenses now and allowed one chance to replead; defendants’ motion granted only as to re-securitized certificates for lack of standing |
Key Cases Cited
- Alliance for Envtl. Renewal, Inc. v. Pyramid Crossgates Co., 436 F.3d 82 (2d Cir.) (standing is a jurisdictional question for Rule 12(b)(1))
- Tandon v. Captain’s Cove Marina of Bridgeport, Inc., 752 F.3d 239 (2d Cir.) (court may resolve disputed jurisdictional facts using evidence beyond the pleadings)
- Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) (derivative suit recovery belongs to the entity)
- RCM Sec. Fund, Inc. v. Stanton, 928 F.2d 1318 (2d Cir.) (board refusal shielded by business judgment rule unless plaintiff shows bad faith/unreasonable investigation after demand)
- Spiegel v. Buntrock, 571 A.2d 767 (Del. 1990) (when demand is refused, review focuses on good faith and reasonableness of the board’s investigation)
- Halebian v. Berv, 590 F.3d 195 (2d Cir.) (Rule 23.1 requires particularized pleading of demand or futility)