OPINION AND ORDER
' This сase is one of many derivative actions recently brought, in this Court and New York state court, against trustees of trusts containing residential mortgage backed securities. In this case, Plaintiffs sue Citibank N.A, (“Défendant” or “Citibank”) in its capacity as trustee for twenty-seven such trusts, alleging that Citibank breached its contractual duties, committed several state-law torts, and violated the Trust Indenture Act of 1939, 15 U.S.C. §§ 77aaa et seq. (“TIA”). Pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil -Procedure, Citibank now moves to dismiss the Complaint in its entirety. For the reasons explained below, Citibank’s motion is granted in part and denied in part.''
BACKGROUND
The following facts — which are taken from the Complaint, documents it incorporates, and matters of which the Court may take judicial notice — are construed in the light most favorable to Plaintiffs. See, e.g., Kleinman v. Elan Corp., plc,
Plaintiffs’ claims arise out of Citibank’s role as trustee for twenty-seven trusts (thе “Trusts”), in which Plaintiffs invested. (Compl. (Docket No.' 1) ¶ 1). The Trusts are of two types: The overwhelming majority are New York common law trusts (the “PSA Trusts”), which are governed by Pooling and Service Agreements (“PSAs”), while the remainder are Delaware statutory trusts (the “Indenture Trusts”), which are governed by Sale and Servicing Agreements (“SSAs”) and Indentures (together
The trust holds the loans for the benefit of investors who purchase securities, which give the investors a beneficial interest in the underlying mortgages. (Id. ¶¶ 2, 108, 159). The trust, also known as the “issuer,” appoints a trustee — in this case, Citibank — whieh is the only independent party to the transaction and which is responsible for ensuring that “each of the mortgage loans was properly conveyed [to the trust]” and for certifying “that the documentation for each loan was accurate and complete.” (Id. ¶ 114). In addition, the sponsor chooses an entity, known as the “servicer,” to collect payments on the underlying loans and take any necessary enforcement action against borrowers. (Id. ¶¶ 120-21). Like the loan originators, the servicers are often affiliated with the sponsoring bank. (Id. ¶¶2, 120). The principal and interest payments on’ the underlying loans are ultimately passed through to the investors. (Id. ¶ 116).
The Trusts are largely established and governed, by contracts, several of which are relevant here. The contract between the originator and the sponsor — or, alternatively, the sponsor and the depositor — is known as a Mortgage Loan Purchase and Sale Agreement (“MLPA”). (Id. ¶ 124). The MLPA governs the sale of the mortgage loans, and includes representations and warranties made by the seller (either the originator or the sponsor) “concerning the characteristics, quality, and risk profile of the mortgage loans.” (Id.).- Significantly, upon “discovery or receipt of notice of any .breach” of a seller’s representations and warranties, the seller is generally required to cure the breach or, if the breach is not cured, to either substitute the defective loan with another loan of adequate quality or repurchase the defective loan at a specified price. (Id. ¶¶ 126-27),
Citibank’s duties as trustee are outlined in the Trust documents. To the extent relevant here, those duties fall into two categories: “pre-default” duties and “post-default” duties. A trustee’s pre-default duties are largely limited to those enumerated in the trust documents. See Elliott Assocs. v. J. Henry Schroder Bank & Tr. Co.,
A trustee’s duties increase following an “Event of Default,” as defined in the Trust documents. For the PSA Trusts, an Event of Default occurs when the servicer fails to perform its duties and' — after proper notice from either a particular percent
In this case, Plaintiffs allege that Citibank breached both its pre- and post-default duties when, between 2009 and 2011, Citibank learned that the. Trusts contained large numbers of loans where the seller or servicer had failed to comply with its obligation, and Citibank failed to take appropriate action. (Compl; ¶¶ 5,12, 222, 27-76, 281, 285-303). Because of these deficiencies, Plaintiffs allege, the Trusts have lost more than $2 billion. (Id. ¶ 97). ' *
LEGAL STANDARDS
As noted, Citibank’s motion is brought pursuant to Rules 12(b)(1) and 12(b)(6). A Rule 12(b)(1) motion challenges the court’s subject matter jurisdiction to hear the case. “A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it.” Makarova v. United States,
By contrast, a Rule 12(b)(6) motion tests the legal sufficiency of a complaint and requires a court to determine whether the facts alleged in the complaint are suffiсient to show that the plaintiff has a plausible claim for relief. Ashcroft v. Iqbal,
Citibank argues that Plaintiffs’ Complaint should be dismissed because (1) the TIA does not authorize a private right of action (Def.’s Mem. 31-35); (2) the Court lacks supplemental jurisdiction over Plaintiffs’ PSA Trust claims (id. at 12-20); and (3) Plaintiffs fail to state a claim (id. at 20-31, 35-38). The Court will address each argument in turn.
A. Private Right of Action Under the TIA
There is no dispute thаt federal jurisdiction exists in this case only by virtue of Plaintiffs’ TIA claims with respect to the Indenture Trusts.
Plaintiffs bring claims pursuant to Sections 315(b) and (c) of the TIA. (Compl. ¶¶ 403-06; see also Pis.’ Mem. 33 n. 21). The former provides, in relevant part, that “[t]he indenture trustee shall give" to the indenture security holders ... notice of all defaults known-to the trustee, within ninety days after the' occurrence thereof.” 15 U.S.C. § 77ooo(b). The latter provides that “[t]he indenture trustee shall exerсise in case of. default (as such term is defined in such indenture) such of the rights- and powers vested in it by such indenture, and to use the same degree of skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.”' Id. § 77ooo(c). Although neither provision contains an express private right of action, courts — including those in' this Circuit — have consistently recognized an implied private right of action under both. See, e.g., Zeffiro v. First Pa. Banking & Tr. Co.,
In Zeffiro, for example, the Third Circuit, relying heavily on the factors articulated by the Supreme Court in Cort v. Ash,
Notably, Citibank cites no authority'to the contrary. (The closest it comes is to note that, in 2014, the Second Circuit “exprеssly declined to address the scope of any private right of action authorized by the TIA.” (Def.’s Mem. 34 n. 2 (citing Retirement Bd.,
The Court is unpersuaded. To be sure, the existence of an express right of action elsewhere in the statute cuts against a finding that Congress also intended to create an implied. right of action under the provisions at issue here. See, e.g., Touche Ross & Co. v. Redington,
That said, the Supreme Court’s decision in Alexander v. Sandoval,
B. Supplemental Jurisdiction
The next question is whether the Court may (and,, if so, should) exercise jurisdiction over Plaintiffs’ claims with respect to the PSA Trusts, which arе not covered by the TIA. Plaintiffs invoke the Court’s sup
As a threshold matter, the Court concludes that it can exercise supplemental jurisdiction over the PSA Trust claims. As Judge Scheindlin recently held in a case substantially similar to this one, the fact that Plaintiffs will have to present loan-specific evidence to prevail at trial or on summary judgement does not mean that there is no common nucleus of operative fact between the PSA-Trust claims and the Indenture Trust claims. See Blackrock Balanced Capital Portfolio v. HSBC Bank USA Nat'l Assoc.,
Retirement Board does not compel a different result. (Def.’s Mem. 13-14). In that case, the Second Circuit held that a named plaintiff does not have class standing to .assert, on behalf of absent class members, breach-of-duty , claims against the trustee of an RMBS trust in which the plaintiffs did not invest. In so ruling, .the Second Circuit did indeed emphasize that the trustee’s “alleged misconduct must be proved loan-by-loan and trust-by-trust,” preventing the named plaintiffs from having a sufficient personal stake in proving claims arising out of the other trusts. Ret. Bd.,
That conclusion, however, does not end the Court’s inquiry. Under Section T367,- a district court has discretion over whether to exercise jurisdiction over state-law claims, even if they, like the ones at issue here, “are so related to claims in the action within [the district court’s] original jurisdiction that .they form part of the same case or controversy under Article III of the United States, Constitution.” Under that.provision, a court may decline to exercise supplemental jurisdiction if “(1) the claim raises a novel or complex issue'of State law, (2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction, ,(3) the district court has dismissed all claims over which it has original jurisdiction, or (4) in exceptional, circumstances, there are other compelling reasons for declining jurisdiction.” 28 U.S.Q. § 1367(c). With respect to the second prong, state-law claims may predominate over federal claims “in terms of proof, of the scope of the issues raised, or of the comprehensiveness of the remedy sought.” Dedalus Found. v. Banach, No. 09-CV-2842 (LAP),
Here, because Plaintiffs will ultimately have to prove them claims loan-by-loan and trust-by-trust, the Court concludes that the state-law claims do “substantially predominate[ ]” over the federal claims. It is true that, as Plaintiffs argue, the “rеlevant issue” for the predominance inquiry' is generally “the type of claims, not the-number of complaints or- damages involved.” (Pis.’ Mem. 20). See Shahriar,
Further, the traditional “values of judicial economy, convenience, fairness, and comity” that the Court must consider do not counsel in favor of exercising jurisdiction. Carnegie-Mellon Univ. v. Cohill,
C. Failure To State a Claim
Finally, Citibank argues that Plaintiffs fail to state a plausible claim with respect to the Indenture Trusts. .In particular, Citibank .argues that Plaintiffs’ breach of contract claim fails because Plaintiffs do not allege that Citibank actually knew about breaches of any parties’ representa,tions and warranties or Events of Default; that their TLA claims fail for similar reasons; and that their negligence and fiduciary duty claims fail bеcause they are duplicative of Plaintiff's’ contract claims and because Plaintiffs do, not adequately plead a conflict of interest.
1. Breach of Contract
Citibank argues first that Plaintiffs’! breach of contract claims fail as a matter of law because the Complaint alleges’ neither that Citibank actually knew about a particular seller’s breach of its representations and warranties nor that it actually knew that an Event of Default had occurred, as required by the Trust Documents. (Def.’s Mem. 20-31). With respect to the former, Citibank argues that the Complaint falls short because Plaintiffs “do not plead any facts showing that statements regarding any specific loan in one of the Trusts breached the seller’s representations and warranties — let alone that Citibank had knowledge of such a breach.” (Id. at 23). But, as several courts have recognized, “[a]t the pleading stagе, plaintiffs cannot be required to identify breaches of representations and warranties with respect to the individual loans in the specific trusts [as] such information, at this stage, is uniquely in the possession of defendants.” Policemen’s Annuity and Ben.
First, Plaintiffs allege “pervasive breaches of representations and warranties,” including that “the representations and warranties regarding the originators’ compliance with underwriting standards and practices, owner occupancy statistics, appraisal procedures, [loan-to-value ratios] and combined loan-to-value ... ratios were systematiсally and pervasively false.” (Compl. ¶ 168). According to . the Complaint, this falsity was evident from, among other red flags, high default rates, declines in credit ratings, and government and newspaper reports that uncovered the pervasive abandonment of underwriting standards — including reports about the major originators and sponsors of loans in the Trusts. (Id. ¶¶ 169-221). In light of such allegations, Plaintiffs’ claims that the sellers breached their representations and warranties are certainly plausible. Indeed, “it would be implausible to assume that somehow all of the mortgage loans underlying the [Trusts] ' miraculously avoided”' the pervasive practices of the industry at the time. Policemen’s/BofA II,
Plaintiffs’ allegations regarding Citibank’s knowledge of these breaches and warranties are similarly sufficient. Plaintiffs support their claims that Citibank knew about the sellers’ breaches with allegations that: (1) the Trusts had “extremely high mortgage loan delinquency rates,” as well as high rates of loan modification (Compl.' ¶¶ 223-27); (2) Citibank learned about widespread breaches of representations and warranties because of its involvement with other RMBS trusts in various capacities, including serving as one of the largest RMBS servicers, being named in RMBS litigation involving similar allegations to those made here, and receiving notice of breaches with respect to other trusts for whiсh it served as trustee (id.' ¶¶ 230-54); and (3) other high profile litigation and settlements regarding the same originators and sponsors as those involved with the Trusts (id. ¶¶ 255-61). Although none of these allegations demonstrates Citibank’s knowledge of deficiencies with respect to any particular loan, they are sufficient to. meet Plaintiffs’ burden at the motion-t.ordismiss stage. See Royal Park Investments,
Citibank’s argument with respect to Plaintiffs’ allegations that Citibank did not appropriately respond to Events of Default similarly fails. First, Citibank argues that Plaintiffs do not actually allege that any Event of Default occurred. (Def.’s Mem. 28-29). Under the Indentures, an “Event of Default” occurs when the Issuer materially breaches its obligations, is notified of the breach by the Trustee or by a certain percentage of investors, and fails to cure the material breach for a period of thirty days. (Sample Indenture, App. A. at 87). Citibank argues that Plaintiffs fail to plead that any Issuer in fact received notice of a default. (Def.’s Mem. 28-29).
Citihank also -argues that Plaintiffs do not adequately plead the existence of an Event of Default because the Indenture Trusts define an Event of Default in terms of the issuer’s breach of its 'duties, while the Complaint alleges only servicer misconduct. (Def.’s Mem. 3Í5-36).
. Further, Plaintiffs adequately plead Citibank’s actual knowledge of the Events of Default. At bottom, Citibank makes the same argument with regard to its knowledge (or lack thereof) about the Events of Default as it made with regard to its knowledge of the breaches of the sellers’ representations and warranties: “Just as ‘actual knowledge’ of a seller’s breach of representations and warranties must be loan-specific, the Trustee’s knowledge of a servicer’s breach of its obligations under the contracts giving rise to an Event of Default must be íraisí-specifíc.” (Def.’s Mem. 29-30). Again, however, Citibank mistakes the facts that Plaintiffs would have to prove at ■ trial (or on summary judgment)' with the' allegations that they must include in their Complaint; in the Complaint, Plaintiffs must demonstrate only that it is plausible that Citibank knew that the - servicers had breached their obligations to particular trusts. Here, • Plaintiffs allege that Citibank had such actual knоwledge based on (1) Citibank’s involvement in enforcement actions and other litigation stemming from servicers’ violations with respect to other trusts (Compl. ¶¶ 304-09); (2) Citibank’s receipt of written notice from investors in other trusts, for which it also served as the trustee, of the systemic servicing violations by the same entities that service the Trusts at issue here (id. ¶¶ 310 — 12); and (3) Citibank’s publishing of the servicers’ servicing reports and monthly remittance reports, which “detailed the Trusts’ increasing loan modifications, -staggering losses, and write-downs due to the poor credit quality of the loans, but did not reflect the servicers’ actions to enforce the sellers’ repurchase obligations” (id. ¶ 313). Those allegations are sufficient' at this stage. See, e.g., Royal Park Investments,
2. TIA Claims
In light of the foregoing, Citibank’s argument for dismissal of Plaintiffs’ TIA claims is easily rejected. As noted, Plaintiffs bring claims pursuant to Sections 315(b) "and (c) of the TIA, which impose duties on a trustee that arise after a default. See 15 U.S.C. § 77ooo(b), (c).
3. Negligence and Breach of Fiduciary Duties
Lastly, Plaintiffs bring two negligence claims — one for breach of the “pre-default duty of independence” and one for breach of the “duty of care” — and two breach of fiduciary duty claims — one for breach of the “duty of care” and one breach of the “post-default duty of independence.” Citibank argues that they should be dismissed as duplicative of Plaintiffs’ contract claims. (Def.’s Mem. 37). It is well established that where “the basis of a party’s claim is a breach of solely contractual obligations, such that the plaintiff is merely seeking to obtain the benefit of the contractual bargain through an action in tort, the claim is precluded as duplicative.” Bayerische Landesbank, N.Y. Branch v. Aladdin Capital Mgmt. LLC,
Plaintiffs’ other negligence and fiduciary duty claims, however, allege the violation of extra-contractual duties— namely, pre- and post-default duties of independence. (Id. ¶¶ 409-17 (negligence); id. 432-40 (fiduciary duty)). “Where an independent tort duty is present, a "plaintiff may maintain both tort and contract claims arising out of the same allegedly wrongful conduct.” Bayerische Landesbank, N.Y. Branch,
CONCLUSION
For the foregoing reasons, Citibank’s motion to dismiss is GRANTED in part and DENIED in part. Specifically, the Court declines to exercise supplémental jurisdiсtion over Plaintiffs’ claims relating to the PSA Trusts. Further, the negligence and fiduciary duty claims alleged in the Complaint’s fourth and fifth causes of action — those relating to alleged breaches of the duty of care — are also' dismissed, on the ground that they are duplicative of Plaintiffs breach of contract claims. (See Compl. ¶¶ 418-31). With respect to the Indenture Trusts, Plaintiffs adequately state a breach of contract claim (id. ¶¶ 387-99) and 'á TIÁ claim (id. ¶¶ 400-408), and the motion :to dismiss is denied with respect to those claims. Similarly, the negligence and fiduciary duty claims alleged in the third and, sixth causes of action — those relating to the duty of independence — also' survive. (See id. ¶¶409-17, 432^0).. . '
The Clerk of Court is directed to terminate Docket No. 39.
SO ORDERED.
. As- both parties acknowledge (see Def.’s Mem. 10-11; Pis’ Opp’n Def. Citibank, N.A,’s Mot. To Dismiss (Docket No. 43) ("Pis.’ Mem.”) 33 n. 20), the TIA does not apply to the PSA Trusts. See Ret. Bd. Policemen's Annuity & Benefit Fund of Chi.,
. Because Citibank’s briefing focused principally on the PSA Trusts, it frames its argument in terms of a lack of notice to the servicers, as required under the PSAs, rather than the issuers, as required under the Indentures. (Def.’s Mem. 28-29). The same principle, however, applies to both types'of Trusts. Accordingly, the Court construes Citibank’s argument to encompass also a lack- of notice to the issuers, as required for Indenture Trusts,
. Strictly speaking, Citibank makes this argument only in the section of its memorandum concerning Plaintiffs' TIA allegations. (Def.’s Mem. 35-36). Nevertheless, the Court addresses it here because it applies equally to .Plaintiff’s breach of contract arguments.
. The Complaint also mentions Section 315(a) (see Compl. ¶ 403), but to the extent Plaintiffs ever intended'to bring claims pursuant to that provision, such claims have been abandoned. (See Pis.’ Mem. 33 n.21 (stating that “Citibank’s challenge to Plaintiffs' TIA Section 315(a) claim is misplaced” because Plaintiffs TIA claim “is predicated on ... violation[s] of 315(b) and (c)”). The Court therefore need not address Citibank’s argument that Plaintiffs fail to state a claim under Section 315(a). (See Def.'s Mem. 35).