117 F. Supp. 3d 392
S.D.N.Y.2015Background
- NCUA Board, as liquidating agent for five failed corporate credit unions, transferred most distressed RMBS ("Legacy Assets") into ten newly formed NGN Trusts and issued $28.3 billion of NCUA‑guaranteed notes; NCUA holds Owner Trust Certificates and acted as Guarantor.
- The NGN Trusts are Delaware statutory trusts; BNY Mellon is Indenture Trustee for the NGN Trusts and Wells Fargo is Owner Trustee.
- NCUA (as Guarantor) demanded that BNY Mellon assert claims on behalf of the NGN Trusts; BNY Mellon declined to pursue the claims and stated it took no position on the merits but acknowledged NCUA’s right to pursue claims; NCUA assigned any NGN Trust rights it held to the NCUA Board.
- NCUA filed suit alleging HSBC (as Indenture Trustee for the original RMBS trusts) breached duties in servicing the underlying RMBS that were later re‑securitized into the NGN Trusts.
- HSBC moved to dismiss, arguing (1) NCUA lacks standing (under 12 U.S.C. § 1787, as third‑party beneficiary, and derivatively), and (2) many claims are time‑barred; the Court denied the motion but required NCUA to amend to satisfy derivative‑suit technicalities.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing under 12 U.S.C. § 1787 | NCUA can sue as liquidating agent succeeding to credit unions’ rights | HSBC: § 1787 only authorizes claims the liquidated credit unions could have brought; they have no interest in NGN Trusts | Denied: § 1787 does not authorize suit on behalf of separate NGN Trusts because the credit unions had no interest in them |
| Third‑party beneficiary status | NCUA claims it is a third‑party beneficiary of NGN Trust indentures and thus can sue | HSBC: even if NCUA benefits, third‑party beneficiary status to the NGN indentures does not authorize enforcement of separate underlying trust agreements (original RMBS trusts) | Denied: third‑party beneficiary argument fails as to claims based on separate agreements |
| Derivative standing on behalf of NGN Trusts | NCUA seeks to proceed derivatively after demand on Indenture Trustee and BNY Mellon’s neutral response | HSBC: NCUA failed to plead wrongful refusal by BNY Mellon or establish demand futility; neutrality concedes independence | Allowed with amendment: BNY Mellon’s neutrality deemed acquiescence under Delaware law (Kaplan); NCUA must amend to comply with Rule 23.1 and Delaware requirements (verification, name NGN Trusts as nominal defendants) |
| Applicability and accrual under Extender provision (12 U.S.C. § 1787) | Extender applies to preserve NCUA’s longer federal limitations periods because NCUA acted in its liquidating/conservator capacity and government will benefit from recovery | HSBC: Extender does not apply to derivative suits brought on behalf of NGN Trusts rather than directly as liquidator | Held: Extender provision applies to these derivative claims given NCUA’s role in creating NGN Trusts and governmental purpose; many accrual/tolling questions remain factually disputed and not decided on 12(b) motion |
Key Cases Cited
- Kaplan v. Peat, Marwick, Mitchell & Co., 540 A.2d 726 (Del. 1988) (neutral position by corporation regarding derivative litigation constitutes tacit approval)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard and plausibility framework)
- King v. Burwell, 135 S. Ct. 2480 (2015) (statutory interpretation principles and context-based reading)
- Sternberg v. O'Neil, 550 A.2d 1105 (Del. 1988) (Delaware law on unincorporated associations and derivative procedure)
- Morrison v. National Australia Bank Ltd., 547 F.3d 167 (2d Cir. 2008) (jurisdictional pleading standards)
- National Credit Union Admin. Bd. v. Nomura Home Equity Loan, Inc., 764 F.3d 1199 (10th Cir. 2014) (discussion of FIRREA/Extender provision and legislative purpose)