Blackrock Balanced Capital Portfolio (FI) et al v. Deutsche Bank National Trust Company et al

Filing 489

MEMORANDUM OPINION AND ORDER. Substantially for the reasons more thoroughly explained by Judges Netburn, Failla, and Schofield, the Court concludes that the burden or expense of the proposed discovery outweighs its likely benefit. Fed. R. Civ. P. 26(b)(1). Plaintiffs' request for permission to proceed with expert discovery using statistical sampling is thus DENIED. SO ORDERED. (Signed by Judge Jesse M. Furman on 5/17/18) (yv)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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BLACKROCK BALANCED CAPITAL PORTFOLIO
:
(FI), et al.,
:
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Plaintiffs,
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-v:
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DEUTSCHE BANK NATIONAL TRUST COMPANY, :
et al.,
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Defendants.
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:
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05/17/2018

14-CV-9367 (JMF)
MEMORANDUM OPINION
AND ORDER

JESSE M. FURMAN, United States District Judge:
In this putative class action, familiarity with which is assumed, certificate holders in
certain residential mortgage-backed security trusts (“RMBS” or “Trusts”) bring suit against
Deutsche Bank National Trust Company and Deutsche Bank Trust Company Americas
(collectively, “Deutsche Bank”), alleging breaches of contractual and statutory duties as
Indenture Trustee for the Trusts. (See Docket No. 141 (“Am. Compl.”), at ¶ 1). Specifically,
Plaintiffs allege that Deutsche Bank violated the Trust Indenture Act of 1939 (“TIA”), 15 U.S.C.
§ 77aaa et seq., and breached its contractual duties by failing to address breaches of
representations and warranties across dozens of RMBS trusts containing hundreds of thousands
of mortgage loans. (Am. Compl. ¶¶ 3-6, 194-209). Now pending is a motion by Plaintiffs for
leave to use “statistical sampling evidence” in order to “assist in proving Deutsche Bank’s
liability and in calculating damages.” (Docket No. 393 (“Pls’ Br.”), at 1).
The Court does not write on a blank slate. The Honorable Sarah Netburn, United States
Magistrate Judge, decided the exact same issue in two nearly identical cases, and the Honorable

Katherine Polk Failla and the Honorable Lorna G. Schofield, United States District Judges, later
affirmed her decisions. See BlackRock Allocation Target Shares v. Wells Fargo Bank, Nat’l
Ass’n (“Wells Fargo MJ Op.”), No. 14-CV-9371 (KPF) (SN), 2017 WL 953550 (S.D.N.Y. Mar.
10, 2017), order clarified sub. nom. BlackRock Allocation Target Shares: Series S Portfolio v.
Wells Fargo Bank, Nat’l Ass’n (“Wells Fargo”), 2017 WL 3610511 (S.D.N.Y. Aug. 21, 2017);
Royal Park Investments SA/NV v. HSBC Bank USA Nat’l Ass’n (“HSBC MJ Op.”), No. 14-CV8175 (LGS) (SN), 2017 WL 945099 (S.D.N.Y. Mar. 10, 2017), aff’d, Royal Park Investments
SA/NV v. HSBC Bank USA Nat’l Ass’n (“HSBC”), 2018 U.S. Dist. LEXIS 31157 (S.D.N.Y. Feb.
23, 2018). 1 Applying the proportionality principle set forth in Rule 26(b)(1) of the Federal Rules
of Civil Procedure, those Judges concluded that the plaintiffs there could not pursue sampling
evidence. On the one hand, “the contemplated sampling will cost hundreds of thousands, if not
millions, of dollars, will require months to conduct, and will likely result in challenges to the
admissibility of the evidence.” Wells Fargo MJ Op., 2017 WL 953550, at *4. On the other
hand, sampling is of limited benefit because the defendant trustees’ “misconduct must be proved
loan-by-loan and trust-by-trust,” Ret. Bd. of the Policemen’s Annuity & Benefit Fund of the City
of Chicago v. Bank of N.Y. Mellon (“Ret. Bd.”), 775 F.3d 154, 162 (2d Cir. 2014), and
“[s]ampling cannot provide loan-specific information as to any loan outside the sample,” HSBC,
2018 U.S. Dist. LEXIS 31157, at *36.

1

The present case happens to be referred to Magistrate Judge Netburn for general pretrial
purposes as well. Recognizing that she has already said her piece, and that any decision she
made here would prompt an appeal to the undersigned anyway, the undersigned agreed to decide
the issue in the first instance in the interests of efficiency.

2

This Court agrees. 2 Notably, Plaintiffs do not dispute that their proposed sampling would
be “burdensome and costly.” (Docket No. 406, at 3). Instead, they insist that sampling will be
“far less expensive and take much less time than conducting the same work on every loan.”
(Docket No. 414, at 10). That much is plainly true, but it also misses the ultimately point:
Because Plaintiffs need to prove liability and damages on a trust-by-trust and loan-by-loan basis,
there is no benefit to sampling beyond what it reveals about the loans within the sample. In
arguing otherwise and attempting to distinguish Wells Fargo and HSBC, Plaintiffs insist that they
seek to sample not to “prove Deutsche Bank’s ‘discovery’ of R&W breaches,” but rather “to
show the existence of and extent of breaching loans in the Trusts and damages.” (Pls’ Br. 4; see
id. 9-10). But the plaintiffs in Wells Fargo and HSBC made nearly the same arguments. See
HSBC, 2018 U.S. Dist. LEXIS 31157, at *37 (“Plaintiffs argue that sampling should be
permitted because it can show ‘the breach rates HSBC would have discovered in a proper
investigation (liability) and . . . estimate the harms to the trusts and plaintiff investors
(damages).’”); Wells Fargo MJ Op., 2017 WL 953550, at *3 (“According to plaintiffs, sampling
will generate and extrapolate breach rates to the at-issue Trusts, as well as prove what a prudent
person would have found if an investigation of breaches had been performed.”). Any differences
between the arguments pressed here and the arguments rejected there are more semantic than
real.
In short, because Plaintiffs cannot avoid the need for loan-specific evidence, there is
nothing to be gained from allowing statistical sampling per se and much to be lost, in time if not

2

In doing so, the Court expresses no view on the analyses of Judges Netburn and Failla
regarding the meaning of the term “discovery” in the relevant agreements. See Wells Fargo,
2017 WL 3610511, at *7-11; Wells Fargo MJ Op., 2017 WL 953550, at *6-8. The Court need
not and does not reach that issue here.

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money. Accordingly, and substantially for the reasons more thoroughly explained by Judges
Netburn, Failla, and Schofield, the Court concludes that “the burden or expense of the proposed
discovery outweighs its likely benefit.” Fed. R. Civ. P. 26(b)(1). Plaintiffs’ request for
permission to proceed with expert discovery using statistical sampling is thus DENIED.

SO ORDERED.
Date: May 17, 2018
New York, New York

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