In 2014, plaintiff Royal Park Investments SA/NV ("Royal Park") sued defendant U.S. Bank National Association ("U.S. Bank"), alleging that U.S. Bank breached its contractual and common law duties in its role as trustee for numerous residential mortgage-backed securities ("RMBS") trusts. (See Dkt. No. 2 ¶¶ 2-24.) That case continues before this Court (the "Underlying Suit").
Three years later, Royal Park sued U.S. Bank again in this Court. On this occasion, Royal Park challenged U.S. Bank's practice of billing to the RMBS trusts the legal fees and expenses U.S. Bank incurred in defending the Underlying Suit. Royal Park alleges that U.S. Bank is not permitted to bill those fees to the trusts and seeks damages, declaratory judgment, and injunctive relief. (See"Fees Complaint," 17 Civ. 6778, Dkt. No. 1.) This separate suit, originally bearing case number 17 Civ. 6778, (the "Fees Suit") has been consolidated with the Underlying Suit and discovery is currently stayed regarding the Fees Complaint. (See Dkt. Nos. 342, 369.)
Before the Court are two requests related to the Fees Complaint. First, National
I. BACKGROUND
On September 6, 2017, Royal Park sued U.S. Bank seeking damages, declaratory relief, and injunctive relief to stop U.S. Bank from billing litigation fees and costs to the trusts at issue in the Underlying Suit. (See Fees Complaint.)
In light of the case's long history before this Court, the Court assumes familiarity with the extensive factual and procedural developments in the Underlying Suit and addresses the relevant background only briefly. As stated in further detail in this Court's order denying class certification, Royal Park asserts that trustee U.S. Bank breached its contractual obligations by failing to protect trust assets in twenty-one RMBS trusts under certain contractual agreements (the "Governing Agreements"). See Royal Park Invs. SA/NV v. U.S. Bank Nat'l Ass'n,
In the Fees Complaint, Royal Park alleges that U.S. Bank has been charging "its legal fees and costs incurred in its defense" of the Underlying Suit to the trusts at issue in that action. (Fees Complaint ¶ 2.) Royal Park alleges that, under the Governing Agreements, U.S. Bank is not permitted to reimburse itself for those fees and costs in this manner. (See id. ¶ 3.) Royal Park brings this putative class action for breach of contract and related claims
On November 13, 2017, U.S. Bank wrote to Royal Park pursuant to the Court's Individual Practices, outlining its arguments in support of a motion to dismiss or, in the alternative, a motion to stay the proceedings. (See U.S. Bank Nov. 13 Letter.) Royal Park responded on November 20, 2017 (see"Royal Park Nov. 20 Letter," Dkt. No. 345), and U.S. Bank, by letter dated November 22, 2017, seeks a pre-motion conference for further guidance on
Separately, by a pre-motion letter dated December 19, 2017, NCUA requests leave to file a motion to intervene under Federal Rule of Civil Procedure 24 (" Rule 24"). (See NCUA Dec. 18 Letter) U.S. Bank opposes NCUA's request, (see"U.S. Bank Dec. 22 Letter," Dkt. No. 355), and Royal Park submitted a letter stating that it takes no position on NCUA's application (see Dkt. No. 354).
In February 2018, Magistrate Judge Robert Lehrburger, to whom this action was referred for pretrial supervision, stayed discovery regarding the Fees Complaint pending resolution of the motion to dismiss after U.S. Bank sought guidance on its pre-motion letter request and how to proceed with discovery. (See"U.S. Bank Feb. 8 Letter," Dkt. No. 364; "U.S. Bank Feb. 13 Letter," Dkt. No. 365; Dkt. No. 369.)
II. DISCUSSION
A. NCUA'S INTERVENTION REQUEST
Acting in its capacity as a liquidating agent, NCUA is a federal agency that holds numerous RMBS certificates, including certificates in two of the twenty-one trusts that Royal Park lists in the Fees Complaint: GPMF 2007-AR1 and WAMU 2007-OA2 (the "Overlapping Trusts"). (See NCUA Dec. 18 Letter at 2.) NCUA also "holds certificates or has beneficial interests in [twenty four] other trusts from the same securitization shelves at issue here" but would limit its proposed complaint to allegations concerning the Overlapping Trusts. (Id. at 2-3.) NCUA asserts that it meets the requirements under Rule 24 to intervene as of right in the dispute. (Id. at 1.) Alternatively, it seeks the Court's leave to intervene in the action permissively. (See id. ) After intervention, NCUA aims to "develop the record on the fact that investor trust beneficiaries enter contracts with the trustee ... reinforcing the conclusion" that case law requires dismissal. (Id. at 3.)
The Court now construes NCUA's letter as a motion for intervention either as of right or with permission, pursuant to Rule 24.
Movants must meet a four-part test in order to intervene successfully:
[T]o intervene either as of right or with permission, an applicant must (1) timely file an application; (2) show an interest in the action; (3) demonstrate that the interest may be impaired by the disposition of the action; and (4) show that the interest is not protected adequately by the parties to the action.... Failure to satisfy any one of these four requirements is a sufficient ground to deny the application.
Floyd v. City of New York,
The Court finds that NCUA satisfies the first, second, and third elements of this test, but cannot fulfill the fourth. Consequently, the Court does not grant intervention by right and denies NCUA's request for permissive intervention on largely the same grounds.
This ruling is consistent with that of another court in this district dealing with similar facts. NCUA has filed motions to intervene under Rule 24 in similar cases brought by Royal Park against others RMBS trustees. The only other court to address such a motion denied NCUA's request. See Royal Park Invs. SA/NV v. HSBC Bank USA, Nat'l Ass'n, No. 17 Civ. 7684,
The Federal Rules do not set a time in which to file a motion to intervene. Instead, the decision is "entrusted to the [district court's] sound discretion" based on "(a) the length of time the applicant knew or should have known of its interest before making the motion; (b) prejudice to existing parties resulting from the applicant's delay; (c) prejudice to the applicant if the motion is denied; and (d) the presence of unusual circumstances militating for or against a finding of timeliness." Floyd,
Here, NCUA filed its pre-motion letter seeking to intervene about three months after Royal Park filed the Fees Complaint and one month after U.S. Bank wrote its pre-motion letter to dismiss or stay the Fees Complaint. NCUA argues that because (1) its proposed complaint would add no new trusts to the litigation and (2) it requests no additional discovery that could delay proceedings, allowing NCUA to intervene would be more economical than requiring NCUA to proceed separately. (See NCUA Dec. 18 Letter at 2.) NCUA also points to numerous cases permitting intervention after lengthier delays. (See
U.S. Bank counters that, because the Fees Suit has been consolidated with the Underlying Suit, the applicable complaint from which to measure timeliness is the original one that Royal Park filed more than four years ago, and thus intervention is not timely. (U.S. Bank Dec. 22 Letter at 1 (citing John Wiley & Sons, Inc. v. Book Dog Books, LLC,
In this proceeding, NCUA wrote its letter regarding a possible intervention motion only a month after U.S. Bank requested leave to file a motion to dismiss. U.S. Bank suffered no prejudice resulting from this short delay. To the extent U.S. Bank is concerned about possible delays, NUCA's filing of a separate suit would delay a resolution more than an intervention where NCUA would not add any additional trusts, seek new discovery, or bring meaningfully new claims. NCUA's limited delay does not engender the kinds of risks and prejudices the timeliness requirement guards against.
What is more, the court in Royal Park v. HSBC found NCUA's motion timely in similar circumstances. There, NCUA moved to intervene the day after HSBC Bank USA, National Association ("HSBC") moved to dismiss the complaint. See
U.S. Bank's res judicata argument is similarly unpersuasive. As NCUA demonstrated in response, the voluntarily dismissed claims did not involve the Overlapping Trusts at issue here. Further, one of the elements of res judicata is that the claim "could have been" brought in the prior action. Soules v. Conn., Dep't of Emergency Servs. & Pub. Prot.,
Thus, the Court finds that NCUA's motion is timely.
2. NCUA's Interest
Next, NCUA must demonstrate an "interest" in the action under Rule 24. "[F]or an interest to be 'cognizable' under Rule 24, it must be direct, substantial, and legally protectable [such that an] interest that is remote from the subject matter of the proceeding, or that is contingent upon the occurrence of a sequence of events before it becomes colorable, will not satisfy the rule." Floyd,
NCUA holds certificates in two trusts that overlap with the trusts at issue in the Fees Complaint (GPMF 2007-AR1 and WAMU 2007-OA2). (See NCUA Dec. 18 Letter at 2.) As a result, NCUA argues in a conclusory manner that its interests in those two trusts are "greater than is required by Rule 24(a)(2)." (Id. ) NCUA also argues that its interests in twenty-four "trusts from the same securitization shelves are interests 'relating to' the trusts" in the Fees Complaint and are also sufficient under Rule 24. (Id. (citing New Jersey Carpenters Health Fund v. Residential Capital, LLC, No. 08 Civ. 5093,
In response, U.S. Bank counters that NCUA's interest must rise to a level that would qualify it as a "necessary party" under Federal Rule of Civil Procedure 19 (" Rule 19"), but that NCUA cannot be a necessary party "as this case has proceeded for nearly four years without it." (U.S. Bank Dec. 22 Letter at 2 (citing MasterCard Int'l Inc. v. Visa Int'l Serv. Ass'n, Inc.,
At least as to the Overlapping Trusts, NCUA appears to have the same interest in this putative class action as does would-be lead plaintiff Royal Park. Without determining whether the Court would grant a motion for class certification, it is instructive that class members who have similar claims as named plaintiffs generally qualify as having an interest under Rule 24. See, e.g., McBean v. City of New York, No. 02 Civ. 5426,
This possible class action setting and identity of interests suffice to respond to U.S. Bank's argument that a party must be "necessary" under Rule 19 to qualify for intervention as of right under Rule 24. See MasterCard,
NCUA's identity of interest with Royal Park also separates this case from Royal Park v. HSBC, where the court determined that NCUA did not have a sufficient interest under Rule 24. See
In sum, the Court finds that NCUA has a sufficient interest in this proceeding to support intervention under Rule 24.
3. Impairment
The next element requires NCUA to show that "disposing of the action may as a practical matter impair or impede [NCUA's] ability to protect its interest." Fed. R. Civ. P. 24(a)(2) ; see also Hartford Fire Ins. Co. v. Mitlof,
Separately, the possibility of stare decisis sometimes constitutes a sufficient risk of impairment to support intervention. Oneida Indian Nation v. State of N.Y.,
Of course, "stare decisis will not support intervention as of right in all cases." Hartford Fire Ins. Co.,
NCUA argues that its "ability to litigate the issue may be constrained by stare decisis" and that meanwhile "funds beneficially owned by NCUA would be impermissibly used" by U.S Bank. (NCUA Dec. 18 Letter at 2.) As noted above, U.S. Bank does not address the potential impairment issue in its letter.
Whether analyzing the potential impairment of NCUA's interests due to stare decisis or its status as a possible absent class member, NCUA faces clear risks from adverse rulings in this case. For example, the Court could render a decision interpreting the same contract language for the same trusts which could one day be at issue in a separate suit brought by NCUA regarding U.S. Bank's practice of billing fees and costs to the trusts. An adverse ruling to Royal Park would create a similar "uphill battle" for NCUA as described in Hartford Fire Ins. Co.,
Even after deciding that NCUA did not have a sufficient interest to intervene, the court in Royal Park v. HSBC addressed whether NCUA's interest would be impaired. Similar reasoning persuaded the court that stare decisis would impair NCUA's interests even though any decision would "only be persuasive authority as to other district court judges who may face the same issue." Royal Park v. HSBC,
Accordingly, the Court finds that disposing of the action here would likely impair NCUA's ability to protect its interests under Rule 24.
4. Adequacy of Representation
Finally, to support intervention, NCUA must show that its interest would not be protected adequately by the parties to the action. Washington Elec. Co-op., Inc. v. Massachusetts Mun. Wholesale Elec. Co.,
NCUA makes three points to support its argument that it is not adequately represented in this proceeding. First, it argues that it has a "broader interest" than Royal Park "as a federal agency" which is "rooted in the public interest." (NCUA Dec. 18 Letter at 3.) Second, it argues that "intervention is commonly granted to absent class members." (Id. (quoting Chen-Oster,
In response, U.S. Bank argues that NCUA's status as a federal agency is immaterial because here it seeks to intervene "as a private liquidating agent using private counsel." (U.S. Bank Dec. 22 Letter at 2.) U.S. Bank also dismisses the relevance of NCUA's interest in other trusts at the same shelf level, given that NCUA has proposed to limit its complaint to only the Overlapping Trusts. (Id. )
Ultimately, NCUA requests the exact relief as Royal Park, asking for the same interpretation of the same contracts for the same trusts. This identity of interest subjects NCUA to the higher burden of demonstrating inadequate representation as described in Washington Electric and Butler. The Court finds that NCUA cannot meet this higher burden.
At the outset, the Court notes its familiarity with Royal Park's zealous advocacy throughout this litigation. Nothing it presents supports NCUA's claim that Royal Park will seek to exclude NCUA's identical interests in any disposition to benefit itself. The mere possibility of such an exclusion, barring other facts that differentiate NCUA from Royal Park, does not overcome the high hurdle required under Rule 24, or else intervention would always be granted to absent class members. Should class certification be granted, NCUA may opt out, and also retains the right to object at a fairness hearing of any class settlement. See Devlin v. Scardelletti,
Next, as recognized in Royal Park v. HSBC, NCUA's status as a government agency adds no weight because NCUA operates as only another certificate holder in this suit.
Finally, while NCUA correctly points out that intervention is commonly granted to absent class members, that outcome ensues because it is granted to rectify an adequacy of representation issue. Many of the cases cited by NCUA involved situations where named plaintiffs could not adequately protect the movants' interests due to changed circumstances or standing issues. See Chen-Oster,
Thus, while NCUA meets the first three elements of the Rule 24 analysis, the Court is not persuaded that it meets the fourth and final required element. NCUA's request for intervention as of right is denied.
5. NCUA's Motion for Permissive Intervention
Courts consider the same four elements when determining whether to grant permissive intervention. See Floyd,
For these reasons, the Court denies NCUA's request for permissive intervention.
B. U.S. BANK'S PRE-MOTION LETTER TO DISMISS OR STAY PROCEEDINGS
The Court next turns to U.S. Bank's letter seeking motion practice to dismiss the Fees Complaint or stay proceedings. The Court now construes U.S. Bank's letter as a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b), or in the alternative, to stay proceedings.
As detailed further below, the Court is persuaded that it is appropriate to issue a stay on this matter pending the outcome of the Underlying Suit. In short, U.S. Bank's jurisdictional arguments regarding Article III standing are unpersuasive
The Supreme Court has made clear that because a "stay is an intrusion into the ordinary processes of administration and judicial review," it is "not a matter of right[;]" rather, it is an "exercise of judicial discretion." Nken v. Holder,
(1) the private interests of the plaintiffs in proceeding expeditiously with the civil litigation as balanced against the prejudice to the plaintiffs if delayed; (2) the private interests of and burden on the defendants; (3) the interests of thecourts; (4) the interests of persons not parties to the civil litigation; and (5) the public interest.
Albert v. Blue Diamond Growers,
Further, when facing "duplicative suits," courts "will commonly stay the second suit" in part "[b]ecause of the obvious difficulties of anticipating the claim or issue-preclusion effects of a case that is still pending." Curtis v. Citibank, N.A.,
The possibility of overlapping or duplicative litigation weighs heavily in this case. The claims at issue in the Fees Complaint may well turn on determinations made in the Underlying Suit. To summarize this overlap briefly, Royal Park alleges that U.S. Bank is improperly billing the trusts for legal fees incurred in the Underlying Suit. U.S. Bank counters that indemnification clauses in the Governing Agreements permit it to bill the trusts for such fees and costs. Royal Park argues that the indemnification clauses do not apply. Critically, the parties also debate an exception to the indemnification clauses for expenses incurred as a result of U.S. Bank's alleged willful malfeasance. This exception may separately preclude U.S. Bank from reimbursing its legal fees and costs if U.S. Bank is found to have acted grossly negligently as regards its contractual duties under the Governing Agreements
Of course, whether U.S. Bank acted grossly negligently is a central factual question in the Underlying Suit. A finding in the Underlying Suit that U.S. Bank acted grossly negligently may fatally undermine its defenses to the Fees Complaint. If so, U.S. Bank would be forced to reimburse the trusts for the legal expenses it charged them. Thus, staying these proceedings could avoid a possible waste of both the parties' and the Court's resources. A stay also avoids the risks and inefficiencies associated with determining indemnification issues during ongoing litigation as opposed to at its conclusion.
None of the other considerations listed above outweigh the potential waste of resources if the case were to proceed. First, even though the Court recognizes that parties like U.S. Bank typically seek indemnification after incurring expenses in defending themselves, U.S. Bank's departure from the ordinary course does not substantially prejudice Royal Park or other trust investors. Most importantly, U.S. Bank is part of one of the largest banks in the United States, and it maintains sufficient coffers to reimburse all legal expenses charged to the trusts if necessary. Second, the public interest in prompt adjudication is counterbalanced by its interest in conserving judicial resources. See Specrite Design, LLC v. Elli N.Y. Design Corp., No. 16 Civ. 6154,
The Court's reasoning accords with at least one other recent case in which a RMBS trustee successfully sought a stay of claims similar to those alleged in the Fees Complaint. See Royal Park Invs. SA/NV v. Deutsche Bank Nat'l Tr. Co., No. 17 Civ. 5916,
For the reasons stated above, the Court is persuaded that proceedings regarding the Fees Complaint should be stayed until the claims in the Underlying Suit are resolved.
III. ORDER
For the reasons discussed above, it is hereby
ORDERED that the motion so deemed by the Court as filed by the National Credit Union Administration Board seeking intervention (Dkt. No. 350) is DENIED; and it is further
ORDERED that the motion so deemed by the Court as filed by defendant U.S. Bank National Association seeking to dismiss claims or stay proceedings (Dkt. No. 343) regarding the Fees Complaint (17 Civ. 6778, Dkt. No. 1) is GRANTED in part and DENIED in part. The motion to dismiss is DENIED and the motion to stay proceedings is GRANTED. Proceedings regarding the Fees Complaint are STAYED until the Underlying Suit (14 Civ. 2590) in this case is resolved.
SO ORDERED.
Notes
The six counts are: (1) Breach of Contract; (2) Unjust Enrichment; (3) Conversion; (4) Breach of Trust; (5) Equitable Accounting; and (6) Declaratory Judgment. (See Fees Complaint ¶¶ 42-76.)
The Court "draw[s] all reasonable inferences in favor of" Royal Park, Tandon v. Captain's Cove Marina of Bridgeport, Inc.,