934 F. Supp. 2d 516
E.D.N.Y2013Background
- SC Note Acquisitions LLC sued Wells Fargo Bank, N.A., Midland Loan Services, Inc., and LNR Partners, LLC alleging various state-law claims related to REMIC status and PSA governance.
- Plaintiff contends defendants’ interpretation of tax law endangered the Trust’s REMIC status, potentially causing tax consequences, though no IRS determination or monetary harm has occurred.
- The PSA created the trust: J.P. Morgan Chase Commercial Mortgage Securities Corp. Commercial Mortgage Pass-Through Certificates, Series 2005-CIBC 13, with mortgage loans exceeding $2.7 billion; Wells Fargo is Trustee, Midland is Master Servicer, and LNR is Special Servicer.
- REMIC status allows pass-through tax treatment; the PSA contemplates two REMICs (Upper and Lower); Section 10.01(f) prohibits actions endangering REMIC status.
- Plaintiff, a minority stake owner in Philips South Beach Hotel through a Trust-held interest, had the Trust’s loan defaulted and subsequently transferred to JPMorgan; Plaintiff formed SC Note Acquisitions LLC in 2011 and admitted purchasing a single certificate to bring this suit.
- IRS has not determined loss of REMIC status and the Trust has not suffered a tax liability; plaintiff acknowledges this uncertainty.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing and ripeness for REMIC-status claims | Plaintiff argues injury is concrete and imminent due to potential REMIC loss. | Defendants contend injury is hypothetical until IRS determines REMIC status. | Counts I–XIV dismissed for lack of Article III standing and ripeness. |
| Contemporaneous ownership requirement for Count XV | Plaintiff argues it need not be derivative and that ownership complies with law. | Plaintiff did not own shares during the core wrongful conduct; ownership after the fact is insufficient. | Count XV dismissed for lack of standing under the contemporaneous ownership rule. |
| No-action clause enforcement | Plaintiff contends trustee conflicts or default could excuse compliance with no-action clause. | No-action clause must be strictly construed and requires notice and other prerequisites; Cruden controls. | Count XV dismissed also on no-action clause grounds. |
Key Cases Cited
- In re Bank of N.Y. Derivative Litig., 320 F.3d 291 (2d Cir.2003) (standing and contemporaneous ownership rule in derivative actions)
- Cruden v. Bank of N.Y., 957 F.2d 968 (2d Cir.1992) (no-action clause strictly construed; trustee not to be sued for self-impairment)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (U.S. 1992) (injury-in-fact requires concrete personal stake)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (pleading standard: plausible claim requires factual allegations)
- Scanlan v. Kodak Retirement Income Plan, 678 F. Supp. 2d 110 (W.D.N.Y.2010) (cannot adjudicate hypothetical tax consequences)
- Ellington Credit Fund, Ltd. v. Select Portfolio Servicing, Inc., 837 F. Supp. 2d 162 (S.D.N.Y.2011) (no-action clause and derivative standing considerations)
- Nathel v. Siegal, 592 F. Supp. 2d 452 (S.D.N.Y.2008) (distinguishes hypothetical tax action from ripe claim)
- Stern & Co. v. State Loan & Finance Corp., 205 F. Supp. 702 (D. Del.1962) (harmonized with Lujan/Iqbal approach to tax-related disputes)