Blackrock Allocation Target Shares: Series S Portfolio et al v. Wells Fargo Bank, National Association et al

Filing 550

OPINION AND ORDER: For the foregoing reasons, the Sampling Motion is DENIED, the 30(b)(6) Motion is DENIED, and the Motion to Supplement and Substitute is GRANTED. The Clerk of Court is directed to terminate the following motions: in Case No. 14 C iv. 9371, the motions pending at Docket Entries #407 and 432; in Case No. 14 Civ. 9764, the motion pending at Docket Entry #299; in Case No. 14 Civ. 10067, the motions pending at Docket Entries #292 and 308; in Case No. 14 Civ. 10102, the motion p ending at Docket Entry #315; and in Case No. 15 Civ. 10033, the motion pending at Docket Entry #238. Before concluding, the Court pauses to express its dissatisfaction with the blatant circumvention of its briefing-length restrictions. The Court wa s troubled by this conduct with regard to the briefing submitted at the motion-to- dismiss stage, and is disappointed to see its utilization again here. The parties and Plaintiffs in particular are hereby warned that future attempts to evade t he Court's page limits, by relegating entire arguments to the footnotes, or by using other "creative" formatting devices, will not be taken kindly. Going forward, the parties would do well to seek the Court's leave to enlarge their page limits, rather than attempting to hide their unauthorized enlargements in plain sight. (Signed by Judge Katherine Polk Failla on 8/18/2017) (js)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------------------------------------- X
:
:
BLACKROCK ALLOCATION TARGET SHARES:
:
SERIES S PORTFOLIO, et al.,
:
:
Plaintiffs,
:
:
v.
:
:
WELLS FARGO BANK, NATIONAL
:
ASSOCIATION, et al.,
:
:
Defendants.
:
--------------------------------------------------------------- X
:
ROYAL PARK INVESTMENTS SA/NV,
:
:
Individually and on Behalf of all Others
:
Similarly Situated,
:
:
Plaintiffs,
:
:
v.
:
:
WELLS FARGO BANK, N.A,
:
as Trustee,
:
:
Defendant.
:
--------------------------------------------------------------- X
:
NATIONAL CREDIT UNION ADMINISTRATION
:
BOARD, as Liquidating Agent of U.S. Central
:
:
Federal Credit Union, Western Corporate Federal
Credit Union, Members United Corporate Federal
:
Credit Union, Southwest Corporate Federal Credit :
:
Union, and Constitution Corporate Federal Credit
:
Union,
:
:
Plaintiff,
:
:
v.
:
:
WELLS FARGO BANK, NATIONAL
:
ASSOCIATION,
:
:
Defendant.
:

14 Civ. 9371 (KPF) (SN)

OPINION AND ORDER

14 Civ. 9764 (KPF) (SN)

14 Civ. 10067 (KPF) (SN)

and

:
:
NCUA GUARANTEED NOTES TRUST 2010-R1,
:
:
NCUA GUARANTEED NOTES TRUST 2010-R2,
NCUA GUARANTEED NOTES TRUST 2010-R3,
:
:
NCUA GUARANTEED NOTES TRUST 2011-R2,
:
NCUA GUARANTEED NOTES TRUST 2011-R4,
:
NCUA GUARANTEED NOTES TRUST 2011-R5,
:
and NCUA GUARANTEED NOTES TRUST 2011:
M1,
:
:
Nominal
:
Defendants.
:
--------------------------------------------------------------- X
:
:
PHOENIX LIGHT SF LIMITED, et al.,
:
:
Plaintiffs,
:
;
v.
:
:
:
WELLS FARGO BANK, N.A.,
:
:
Defendant.
:
--------------------------------------------------------------- X
:
:
COMMERZBANK AG,
:
:
Plaintiffs,
:
:
v.
;
:
WELLS FARGO BANK N.A.,
:
:
Defendant.
:
--------------------------------------------------------------- X

14 Civ. 10102 (KPF) (SN)

15 Civ. 10033 (KPF) (SN)

KATHERINE POLK FAILLA, District Judge:
Pending before the Court are multiple motions, several discovery-related
and others responsive to the Court’s March 30, 2017 Opinion and Order (the

2

“March 30 Opinion”). The Court here resolves three of them, listed in the order
in which they were filed:
(i) The Rule 72 Objections to and Motion to Vacate
Magistrate Judge Netburn’s Opinion and Order
Concerning Sampling (the “Sampling Motion”), filed
by Plaintiffs Blackrock Allocation Target Shares: Series S
Portfolio (the “BlackRock Plaintiffs”), Royal Park
Investments SA/NV, Phoenix Light SF Limited, National
Credit Union Administration Board, as liquidating agent
(the “NCUAB”), and Commerzbank AG (collectively with
the other Plaintiffs, the “Coordinated Plaintiffs”);
(ii) The Motion of the NCUAB, as liquidating agent for
five corporate credit unions, and Graeme W. Bush, as
Separate Trustee of the NGN Trusts, for Leave to File a
Supplemental Complaint and Substitute the Separate
Trustee as Plaintiff for NGN-Related Claims (the “Motion
to Supplement and Substitute”); and
(iii) The Blackrock Plaintiffs’ Rule 72 Objections to and
Motion to Vacate Magistrate Judge Netburn’s Order
Concerning Topics for Defendant’s Rule 30(b)(6)
Depositions (the “30(b)(6) Motion”).
For the reasons outlined in the remainder of this Opinion, the Coordinated
Plaintiffs’ Sampling Motion is denied and their objections overruled; the
NCUAB’s Motion to Supplement and Substitute is granted; and the BlackRock
Plaintiffs’ 30(b)(6) Motion is denied and their objections overruled.
BACKGROUND 1
The Court presumes familiarity with the factual and procedural
background of these related cases, which background has been described in

1

Except where otherwise specified, the docket citations in this Opinion are to Case No.
14 Civ. 10067. For clarity, the Court will not cite to duplicative entries on each of the
five relevant dockets. (See also Dkt. #296, at 3 n.1 (Coordinated Plaintiffs adopting the
same practice in briefing related to the Sampling Motion)).
With regard to the Sampling Motion, the Court will refer to the parties’ briefing in the
following manner: the Coordinated Plaintiffs’ memorandum of law in support of the

3

detail in the March 30 Opinion (Dkt. #281) and in Judge Netburn’s March 10,
2017 Opinion & Order (the “Sampling Opinion” (Dkt. #263)). See BlackRock
Allocation Target Shares: Series S. Portfolio v. Wells Fargo Bank, Nat’l Ass’n,
No. 14 Civ. 9371 (KPF) (SN), 2017 WL 1194683, at *2-6 (S.D.N.Y. Mar. 30,
2017) (“BlackRock DJ Opinion”); BlackRock Allocation Target Shares v. Wells
Fargo Bank, Nat’l Ass’n, No. 14 Civ. 9371 (KPF) (SN), 2017 WL 953550, at *1-3
(S.D.N.Y. Mar. 10, 2017) (“BlackRock MJ Opinion”). The Court hereby
incorporates those factual statements by reference, and will focus its attention
in this section on the developments in these cases that are of particular
relevance to the three motions resolved in this Opinion. Because of the
interrelationship of certain of the motions, the Court will set forth the relevant
facts for all three motions before proceeding to its analysis.

Sampling Motion as “Pl. Sampling Br.” (Dkt #296); Defendant’s memorandum of law in
opposition as “Def. Sampling Opp.” (Dkt. #314); and the Coordinated Plaintiffs’ reply
memorandum as “Pl. Sampling Reply” (Dkt. #317).
With regard to the Motion to Supplement and Substitute, the Court will refer to the
parties’ briefing similarly: the NCUAB and Separate Trustee’s memorandum of law in
support of the Motion to Supplement and Substitute as “Pl. Supp. & Sub. Br.” (Dkt.
#309); Defendant’s memorandum of law in opposition as “Def Supp. & Sub. Opp.” (Dkt.
#322); and the NCUAB and Separate Trustee’s reply memorandum as “Pl. Supp. & Sub.
Reply” (Dkt. #324).
The same with regard to the 30(b)(6) Motion: the BlackRock Plaintiffs’ memorandum of
law in support of the 30(b)(6) Motion will be referred to as “Pl. 30(b)(6) Br.” (14 Civ. 9371
Dkt. #433); Defendant’s memorandum of law in opposition as “Def. 30(b)(6) Opp.” (14
Civ. 9371 Dkt. #485); and the BlackRock Plaintiffs’ reply memorandum as “Pl. 30(b)(6)
Reply” (14 Civ. 9371 Dkt. #499). Defendant’s letter motion to strike the exhibits filed
with the BlackRock Plaintiffs’ 30(b)(6) reply will be referred to as “Def. Str. Letter” (Dkt.
#504) and its sur-reply as “Def. 30(b)(6) Sur-Reply” (Dkt. #512).
The affidavits filed in support of the parties’ briefing will be referred to by the name of
the affiant, and, as needed, the name of the brief with which it is associated. For
example: “Attaway Sampling Decl.” (Dkt. #297), “Lovitt Sampling Opp. Decl.” (Dkt.
#315), and “Attaway Sampling Reply Decl.” (Dkt. #318).

4

A.

The Sampling Motion
On September 17, 2015, these related cases were referred to the

Honorable Sarah Netburn, United States Magistrate Judge, for the purposes of
managing discovery. (Dkt. #53). Judge Netburn instituted a schedule for
expert discovery on July 22, 2016, that directed the parties to “work diligently
and cooperatively in advance of the expert discovery period to develop a loan
re-underwriting protocol,” and to propose a joint proposed protocol to the
Court. (Dkt. #130).
Perhaps unsurprisingly, the parties could not agree on such a protocol.
In a letter filed on August 11, 2016, Wells Fargo expressed its belief that
“[r]equiring the parties to commence the re-underwriting process at [that]
juncture of the litigation [was] inefficient and illogical.” (Dkt. #143, at 1). Wells
Fargo proposed that non-underwriting discovery continue to progress, but that
“underwriting efforts be held in abeyance until a later stage of the case.” (Id. at
2). The Coordinated Plaintiffs responded by letter filed on August 16, 2016, in
which they urged the Court to reject Wells Fargo’s bifurcated-discovery
proposal. (Dkt. #147). Each side also proposed its own re-underwriting
protocol. (Compare id., with Dkt. #143).
On October 28, 2016, the parties appeared before Judge Netburn for a
discovery conference to discuss issues regarding the mortgage loan reunderwriting sampling process. (See Dkt. #169). Judge Netburn “ordered the
parties to brief the issue of whether sampling, in the context of re-underwriting
mortgage loans, can be used to support or challenge any claim or defense in

5

these related Actions.” (Id.). Subsequently, Judge Netburn set a briefing
schedule by Order dated November 2, 2016, and also directed the parties to
address five specific questions in their papers. (Id.). Briefing concluded on
December 14, 2016. (Dkt. #210).
By order dated February 24, 2017, Judge Netburn denied as
disproportionate to the needs of the case the Coordinated Plaintiffs’ motion for
leave to re-underwrite a sample of loans to prove Wells Fargo’s liability beyond
the specific loans included in the sample pool. (Dkt. #253). Judge Netburn
explained the reasoning for this decision in the Sampling Opinion issued on
March 10, 2017. (Dkt. #263). See BlackRock MJ Opinion, 2017 WL 953550.
The Coordinated Plaintiffs filed the Sampling Motion on April 7, 2017.
(Dkt. #292-97). Defendant filed its opposition thereto on April 28, 2017 (Dkt.
#314-15), and the Coordinated Plaintiffs filed their reply on May 5, 2017 (Dkt.
#317-19).
B.

The Motion to Supplement and Substitute
The March 30 Opinion dismissed the NCUAB’s derivative claims. See

BlackRock DJ Opinion, 2017 WL 1194683, at *21-30. The Court found that
through the NGN Indenture Agreement, Bank of New York Mellon (“BNYM”)
“was granted the right to take action against Defendant with respect to the
certificates and the Trusts.” BlackRock DJ Opinion, 2017 WL 1194683, at *2130 (internal quotation mark omitted) (quoting Dkt. #82, at ¶ 33; Dkt. #82-2).
Specifically, the Granting Clause of the Indenture Agreement gave BNYM, in its
capacity as Indenture Trustee, “all of [the Trusts’] right, title and interest in

6

and to ... the Underlying Securities ... , and all distributions thereon, ... [and]
all present and future claims, demands, causes, and choses in action in
respect of the foregoing, including ... the rights of the [Trusts (as the Issuers)]
under the Underlying Securities and Underlying Agreements.” (Dkt. #82-2, at
5). “This language effected a broad grant of rights to BNYM. Any right to sue
that the NCUAB had against Defendant with regard to the Trust Estate was
transferred, along with that Estate, to BNYM.” BlackRock DJ Opinion, 2017 WL
1194683, at *27. And BNYM declined to exercise that right and pursue the
claims in the instant action. (Dkt. #82, at ¶ 34).
Crucially, however, the March 30 Opinion dismissed the NCUAB’s
derivative claims without prejudice. See BlackRock DJ Opinion, 2017 WL
1194683, at *30. The Court permitted the NCUAB to move the Court for leave
to amend its pleading, but required that in doing so the NCUAB (i) identify the
party who would replace it, (ii) explain how such a substitution would rectify
the standing deficiencies identified in the March 30 Opinion, and (iii) address,
in detail, the contemplated impact that a substitution (and, conversely, a
failure to substitute) would have on this case, particularly its ongoing discovery
schedule. Id.
“Effective April 27, 2017, BNYM appointed Mr. Graeme W. Bush as
Separate Trustee of the NGN Trusts in order ‘to add the Separate Trustee as a
substituted or additional plaintiff, as the court may require, to assert any
claims on behalf of the Indenture Trustee or the NGN Trusts (the Separate
Trustee Claims).’” (Pl. Supp. & Sub. Br. 4-5 (quoting Hall Supp. & Sub. Decl.,

7

Ex. B (the “Separate Trustee Agreement”))). BNYM made this appointment
pursuant to its Indenture-Trustee authority under Section 5.13 of the
Indenture Agreements. Id. (quoting Hall Supp. & Sub. Decl., Ex. B, at § 1.1)).
BNYM “transfer[red] to the Separate Trustee, and the Separate Trustee ...
assume[d] any and all legal title, claims, powers, rights, authorities, and duties
of the Indenture Trustee, including pursuit of the Separate Trustee Claims.”
Id. (internal quotation mark omitted) (quoting Hall Supp. & Sub. Decl., Ex. B,
at § 1.1)). The Separate Trustee was empowered to “pursue such claims or
litigation in the name of the Separate Trustee pursuant to the appointment by
the Indenture Trustee, except as may otherwise be required by law or
applicable court order.” Id. (internal quotation mark omitted) (quoting Hall
Supp. & Sub. Decl., Ex. B, at § 1.13).
The NCUAB filed the Motion to Supplement and Substitute on April 27,
2017. (Dkt. #308-10). Defendant filed its opposition thereto on May 19, 2017
(Dkt. #322-23), and the NCUAB its reply on May 26, 2017 (Dkt. #324-25).
C.

The 30(b)(6) Motion 2
On December 19, 2016, Judge Netburn issued a Deposition Protocol

Order Governing Fact Depositions, including the depositions of Rule 30(b)(6)
witnesses. (Dkt. #284). The deadlines set therein were subsequently extended
several times at the parties’ request. (Dkt. #337, 386, 402). On April 5, 2017,
Judge Netburn ordered the parties to file with the Court any resolved

2

The docket citations within this section are all citations to the docket of Case No. 14
Civ. 9731.

8

objections to the proposed scope of the Rule 30(b)(6) depositions by a date
certain. (Dkt. #402).
However, on April 6, 2017, Defendant advised the Court that the parties
were unable to “reach agreement on the proper scope of [the Consolidated]
Plaintiffs’ upcoming Rule 30(b)(6) deposition of [Defendant].” (Dkt. #403). For
various reasons, Defendant believed Plaintiffs’ demands to be unreasonably
broad, “impractical[,] and outside the bounds of Rule 30(b)(6).” (Id.). The
Consolidated Plaintiffs opposed Defendant’s letter on April 11, 2017. (Dkt.
#412). In turn, the Consolidated Plaintiffs argued that Defendant sought
“duplicative Rule 30(b)(6) testimony on vast, open-ended topics that cover
virtually the entire spectrum of Plaintiffs’ businesses and the RMBS market in
general.” (Dkt. #404). The Consolidated Plaintiffs felt Defendant’s requests
were unduly burdensome and intended to harass them. (Id.).
Judge Netburn resolved these disputes in an order issued on April 27,
2017 (the “30(b)(6) Order” (Dkt. #422)). Each party’s objections were sustained
in part and overruled in part. (Id.). With respect to BlackRock’s Objections to
Defendant’s 30(b)(6) Notices specifically, the 30(b)(6) Order held with regard to
the Notice applicable to the BlackRock Plaintiffs:
•

3

It is ORDERED that the BlackRock plaintiffs’ objections
to General Topics 3, 4, 5, 8, 9, 10, 11, 12, 13, 14, 15,
16, and 17 are OVERRULED, and the BlackRock
plaintiffs must each produce a witness, pursuant to
Rule 30(b)(6), to testify on these topics as set forth in
Wells Fargo’s Notice of Deposition (Ex. 1 to Wells Fargo’s
April 11, 2017 Letter). 3

These topics are listed and their scope outlined in depth in Exhibit B to the Declaration
of Benjamin Galdston filed in Support of the 30(b)(6) Motion. (Dkt. #434-2).

9

•

It is FURTHER ORDERED that the BlackRock plaintiffs’
objections to General Topics 1, 2, and 19 are
SUSTAINED, and the BlackRock plaintiffs must each
produce a witness, pursuant to Rule 30(b)(6), to testify
on these topics as modified by the BlackRock plaintiffs’
counter-proposal Notice of Deposition (Ex. B to
BlackRock Plaintiffs’ April 6, 2017 Letter).

•

It is FURTHER ORDERED that the BlackRock plaintiffs’
objections to General Topics 6 and 7 are SUSTAINED,
and the BlackRock plaintiffs need not produce a
witness, pursuant to Rule 30(b)(6), to testify as to these
topics.

•

It is FURTHER ORDERED that the BlackRock plaintiffs’
objections to General Topic 18 are SUSTAINED, and the
BlackRock plaintiffs must each produce a witness,
pursuant to Rule 30(b)(6), to testify only to the plaintiffs’
theory of damages, but not to the amount of any losses,
the time of occurrence, quantification or cause of such
damages.

(Dkt. #422). And with regard to the individual plaintiff groups comprising the
BlackRock Plaintiffs, the 30(b)(6) Order held:
•

It is ORDERED that BlackRock must produce a witness,
pursuant to Rule 30(b)(6), to testify on Topic (i) as set
forth in Wells Fargo’s Notice of Deposition.

•

It is FURTHER ORDERED that DZ Bank must produce
a witness, pursuant to Rule 30(b)(6), to testify on Topic
(i) as set forth in Wells Fargo’s Notice of Deposition.

•

It is FURTHER ORDERED that Prudential’s objections
to Topic (i) are OVERRULED, and Prudential must
produce a witness, pursuant to Rule 30(b)(6), to testify
on the particular topic as set forth in Wells Fargo’s
Notice of Deposition.

•

It is FURTHER ORDERED that TIAA’s objections to
Topic (i) are OVERRULED, and TIAA must produce a
witness, pursuant to Rule 30(b)(6), to testify on the

10

particular topic as set forth in Wells Fargo’s Notice of
Deposition.
•

It is FURTHER ORDERED that PIMCO’s objections to
Wells Fargo’s Topics are OVERRULED in part and
SUSTAINED in part, and PIMCO must produce a
witness, pursuant to Rule 30(b)(6), to testify on only the
following topics set forth in Wells Fargo’s Notice of
Deposition: all sub-sections of Topic (i) except for subsection (a) regarding Mr. Gu’s PIMCO investments;
Topic (ii); only subsection (a) of Topic (iii) regarding
budgets of RMBS-related surveillance; and Topic (iv).

•

It is FURTHER ORDERED that Sealink’s objections to
Wells Fargo’s Topics are OVERRULED in part and
SUSTAINED in part, and Sealink must produce a
witness, pursuant to Rule 30(b)(6), to testify on only the
following topics set forth in Wells Fargo’s Notice of
Deposition: Topic (i); all sub-sections of Topic (ii) except
for sub-section (e); Topic (iii); and Topic (iv).

•

Wells Fargo is FURTHER ORDERED to file a redacted
copy of its April 11, 2017 response to BlackRock’s
objections on the public docket.

(Id.).
The BlackRock Plaintiffs filed the 30(b)(6) Motion with this Court on
May 11, 2017. (Dkt. #432-34). Defendant filed its opposition thereto on
June 15, 2017 (Dkt. #485-86), and the BlackRock Plaintiffs their reply on
June 27, 2017 (Dkt. #499-500). On June 29, 2017, Defendant filed a letter
motion to strike the evidentiary exhibits the BlackRock Plaintiffs submitted in
support of their reply. (Dkt. #504). The Court deferred resolution of
Defendant’s letter motion pending the resolution of the 30(b)(6) Motion, but
permitted Defendant to file a sur-reply. (Dkt. #505). Defendant filed a surreply on July 10, 2017. (Dkt. #512; see also Dkt. #510-11).

11

DISCUSSION
A.

The Rule 72 Objections Are Overruled and the Motions to Vacate
Are Denied
The Court begins its consideration with the Sampling Motion and the

30(b)(6) Motion, both brought pursuant to Federal Rule of Civil Procedure 72.
The Court will first discuss the standards applicable to each motion under that
Rule and Federal Rule of Civil Procedure 26. It will then consider each motion
in turn, beginning with a discussion of additional law implicated by each before
proceeding to an explanation of why each motion fails.
1.

Applicable Law
a.

Federal Rule of Civil Procedure 72

District Courts are empowered to “designate a magistrate judge to hear
and decide a pretrial matter that is ‘not dispositive of a party’s claim or
defense.’” Arista Records, LLC v. Doe 3, 604 F.3d 110, 116 (2d Cir. 2010)
(quoting Fed. R. Civ. P. 72(a)) (citing 28 U.S.C. § 636(b)(1)(A)). If a party timely
objects to the magistrate judge’s decision on the non-dispositive matter, “[t]he
district judge in the case must consider [the] timely objections and modify or
set aside any part of the order that is clearly erroneous or is contrary to law.”
Fed. R. Civ. P. 72(a). District courts may also refer dispositive matters to a
magistrate judge, but “only for recommendation, not for decision.” Arista
Records, 604 F.3d at 116 (citing 28 U.S.C. § 636(b)(1)(B); Fed. R. Civ. P. 72(b)).
“As to a dispositive matter, any part of the magistrate judge’s recommendation
that has been properly objected to must be reviewed by the district judge de
novo.” Id. (citing Fed. R. Civ. P. 72(b)).
12

“Pretrial discovery motions are considered nondispositive and are
reviewed for clear error.” City of N.Y. v. FedEx Ground Package Sys., Inc., No.
13 Civ. 9173 (ER), 2017 WL 633445, at *3 (S.D.N.Y. Feb. 14, 2017); accord,
e.g., Arista Records, 604 F.3d at 116 (“Matters concerning discovery generally
are considered nondispositive of the litigation.” (quoting Thomas E. Hoar, Inc. v.
Sara Lee Corp., 900 F.2d 522, 525 (2d Cir. 1990)). “An order is clearly
erroneous if the reviewing court is ‘left with the definite and firm conviction
that a mistake has been committed.’” Lifeguard Licensing Corp. v. Ann Arbor TShirt Co., LLC, No. 15 Civ. 8459 (LGS), 2017 WL 3142072, at *1 (S.D.N.Y.
July 24, 2017) (quoting Frydman v. Verschleiser, No. 14 Civ. 5903 (JGK), 2017
WL 1155919, at *2 (S.D.N.Y. Mar. 27, 2017)); accord, e.g., Easley v. Cromartie,
532 U.S. 234, 242 (2001). And “[a]n order is contrary to law when it fails to
apply or misapplies relevant statutes, case law[,] or rules of procedure.” Id.
(internal quotation marks omitted) (quoting Frydman, 2017 WL 1155919, at
*2). “This is a highly deferential standard, and ‘[t]he party seeking to overturn
a magistrate judge’s decision thus carries a heavy burden.’” FedEx Ground
Package Sys., 2017 WL 633445, at *3 (alteration in original) (quoting U2 Home
Entm’t, Inc. v. Hong Wei Int’l Trading Inc., No. 04 Civ. 6189 (JFK), 2007 WL
2327068, at *1 (S.D.N.Y. Aug. 13, 2007)); see also Infinity Headwear & Apparel,
LLC v. Jay Franco & Sons, Inc., No. 15 Civ. 1259 (JPO), 2017 WL 3309724, at
*7 (S.D.N.Y. Aug. 2, 2017) (“[M]agistrate judges are given ‘broad discretion in
resolving nondispositive disputes and reversal is appropriate only if their

13

discretion is abused.’” (quoting Advanced Analytics, Inc. v. Citigroup Glob.
Mkts., Inc., 301 F.R.D. 47, 50 (S.D.N.Y. 2014))).
b.

Federal Rule of Civil Procedure 26

Federal Rule of Civil Procedure 26 permits parties to
obtain discovery regarding any nonprivileged matter
that is relevant to any party’s claim or defense and
proportional to the needs of the case, considering the
importance of the issues at stake in the action, the
amount in controversy, the parties’ relative access to
relevant information, the parties’ resources, the
importance of the discovery in resolving the issues, and
whether the burden or expense of the proposed
discovery outweighs its likely benefit.
Fed. R. Civ. P. 26(b)(1). “This [recently amended] rule is intended to ‘encourage
judges to be more aggressive in identifying and discouraging discovery overuse’
by emphasizing the need to analyze proportionality before ordering production
of relevant information.” In re Namenda Direct Purchaser Antitrust Litig., No. 15
Civ. 7488 (CM) (JCF), 2017 WL 2693713, at *3 (S.D.N.Y. June 21, 2017)
(quoting Fed. R. Civ. P. 26(b)(1) Advisory Committee’s Note to 2015
Amendment)). Information “need not be admissible in evidence to be
discoverable.” Fed. R. Civ. P. 26(b)(1).
2.

The Sampling Motion Is Denied and the Objections Raised
Therein Overruled
a.

The Court Reviews the Sampling Opinion for Clear Error

The Consolidated Plaintiffs argue that the Sampling Opinion should be
reviewed de novo, because it was rooted in conclusions of law and exceeded the
scope of the Court’s reference to Judge Netburn. (Pl. Sampling Br. 5-6). The
Court does not agree. The Sampling Opinion was decided pursuant to Rule 26,
14

“the Federal Rule of Civil Procedure governing discovery,” and thus is a classic,
non-dispositive decision regarding discovery that is subject to clear error
review. Capitol Records, LLC v. Escape Media Grp., Inc., No. 12 Civ. 6646 (AJN),
2015 WL 1402049, at *3 (S.D.N.Y. Mar. 25, 2015).
The Second Circuit rejected an argument similar to the Consolidated
Plaintiffs’ in Arista Records. In that case, a defendant argued that a motion to
quash the plaintiffs’ subpoena was a dispositive motion because its
adjudication necessarily required the magistrate judge to decide the dispositive
question of whether the complaint properly stated a claim. Arista Records, 604
F.3d at 116. The Circuit affirmed the district court’s rejection of this
argument. Id. It found the motion was not dispositive because (i) the
magistrate judge need not have decided the complaint’s sufficiency in order to
resolve it, (ii) quashing the subpoena would not have terminated any claims or
the action, (iii) the defendant’s other arguments undermined his contention
that the motion was dispositive, and (iv) the district court had indicated that it
would have affirmed the magistrate judge even if it had considered the matter
de novo. Id. at 116-17.
This Court rejects the Consolidated Plaintiffs’ arguments regarding the
nature of the Sampling Opinion for similar reasons. Judge Netburn did not
decide Plaintiffs’ standard of proof at trial or summary judgment in resolving
the sampling issue. She in fact did just the opposite, disclaiming any law-ofthe-case effect. BlackRock MJ Opinion, 2017 WL 953550, at *4. A dispositive
determination was not inevitably implicated by her proportionality analysis

15

under Rule 26. Nor did the Sampling Opinion terminate any claims or the
action. Indeed, the Consolidated Plaintiffs themselves have admitted that they
have other evidence relevant to Defendant’s “discovery” and “actual
knowledge.” (See, e.g., Pl. Sampling Br. 20-22). Thus, for the reasons it will
explain more fully in the following section of this Opinion, the Court would
deny the Sampling Motion even if it employed de novo review and conducted
Judge Netburn’s Rule 26 analysis anew.
b.

The Sampling Opinion Is Not Clearly Erroneous or
Contrary to Law

The Consolidated Plaintiffs offer a host of arguments in support of the
Sampling Motion. They contend that the Sampling Opinion was mistaken in
its conclusions regarding the utilization of sampling in RMBS litigation. (Pl.
Sampling Br. 10-14). The Consolidated Plaintiffs argue that the Sampling
Opinion erred in concluding that sampling would not identify breaches that
materially and adversely affected loan value. (Id. at 14). And because
“discovery,” as used in the relevant Trust documents allegedly requires only
“constructive knowledge,” rather than “actual knowledge,” the Consolidated
Plaintiffs believe the Sampling Opinion misconstrued the law and misapplied
contract-interpretation principles to the parties’ contracts. (Id. at 15-20).
Finally, the Consolidated Plaintiffs dispute the Sampling Opinion’s conclusion
that sampling would not aid the Plaintiffs in proving their claims that
Defendant failed to fulfill its contractually heightened duties subsequent to
events of default. (Id. at 22-25).

16

These arguments do not succeed. In reviewing the Sampling Opinion,
the Court is left with neither the definite and firm conviction that a mistake has
been made nor a belief that Judge Netburn failed to apply or misapplied the
applicable law.
i.

It Was Not Clear Error to Conclude That
“Discovery” Requires More Than Constructive
Knowledge

As this Court found in its March 30 Opinion, it remains the law in RMBS
cases of this kind that “[t]o prevail ultimately on the breach of contract claim, a
plaintiff does have to demonstrate breach on a loan-by-loan and trust-by-trust
basis.” BlackRock DJ Opinion, 2017 WL 1194683, at *7 (alteration in original)
(internal quotation marks omitted) (quoting Phoenix Light SF Ltd. v. Deutsche
Bank Nat’l Tr. Co., 172 F. Supp. 3d 700, 713 (S.D.N.Y. 2016)); see also, e.g.,
Ret. Bd. of the Policemen’s Annuity & Ben. Fund of the City of Chi. v. Bank of
N.Y. Mellon, 775 F.3d 154, 162 (2d Cir. 2014) (“[The trustee’s] alleged
misconduct must be proved loan-by-loan and trust-by-trust. For example,
[determining] ... [w]hether [the trustee] was obligated to repurchase a given
loan requires examining which loans, in which trusts, were in breach of the
representations and warranties. And [determining] whether a loan’s
documentation was deficient requires looking at individual loans and
documents.”); Royal Park Invs. SA/NV v. HSBC Bank USA, Nat’l Ass’n, 109 F.
Supp. 3d 587, 601 (S.D.N.Y. 2015) (“Certainly, at trial or summary judgment,
plaintiffs must prove their claims ‘loan-by-loan and trust-by-trust.’” (quoting
Ret. Bd. of the Policemen’s Annuity & Ben. Fund, 775 F.3d at 162)). Thus,

17

Judge Netburn was correct in holding as much. See BlackRock MJ Opinion,
2017 WL 953550, at *4.
The Consolidated Plaintiffs have alleged that Defendant breached the
relevant Trust Agreements by failing to discharge certain contractual duties.
As Judge Netburn found, these allegations “are rooted specifically in Sections
2.03 and 8.01 of the PSAs”:
Section 2.03 provides in relevant part: “Upon discovery
or receipt of written notice of any materially defective
document in, or that a document is missing from, a
Mortgage File or of the breach by the Originators or the
Seller of any representation or warranty under the
related Originator Mortgage Loan Purchase Agreement
or the Mortgage Loan Purchase Agreement, as
applicable, in respect of any Mortgage Loan which
materially adversely affects the value of such Mortgage
Loan, Prepayment Charge or the interest therein of the
Certificateholders, the Trustee shall promptly notify the
applicable Originator or the Seller, as the case may be,
the Servicer and the NIMS Insurer ... and request that,
in the case of a defective or missing document, the
Seller cure such defect or deliver such missing
document within 120 days from the date the Seller was
notified of such missing document or defect or, in the
case of a breach of a representation or warranty,
request the related Originator or the Seller, as
applicable, cure such breach within 90 days from the
date the applicable Originator or the Seller, as the case
may be, was notified of such breach. Notwithstanding
the foregoing, any breach of a Deemed Material and
Adverse Representation with respect to a Group 1
Mortgage Loan or Group 2 Mortgage Loan shall
automatically be deemed to materially and adversely
affect such Mortgage Loan or the interest of the related
Certificateholders therein.
If the Seller does not deliver such missing document or
cure such defect or if the related Originator or the Seller,
as applicable, does not cure such breach in all material
respects during such period, the Trustee shall enforce
such Originator’s or the Seller’s obligation, as the case
18

may be, under the applicable Originator Mortgage Loan
Purchase Agreement or the Mortgage Loan Purchase
Agreement, or Additional Mortgage Loan Purchase
Agreement as applicable, and cause such Originator or
the Seller, as applicable, to repurchase such Mortgage
Loan from the Trust Fund at the Purchase Price on or
prior to the Determination Date following the expiration
of such period (subject to Section 2.03(d)).
BlackRock MJ Opinion, 2017 WL 953550, at *2 (quoting ABFC 2006-OPT1 PSA
§ 2.03(a)).
Under this Section, if Defendant (i) discovers or receives written notice of
any materially defective document in, or document that is missing from, a
mortgage file, or (ii) discovers or receives written notice of any breach by an
originator or seller of a representation or warranty “in respect of any Mortgage
Loan which materially adversely affects the value of such Mortgage Loan,
Prepayment Charge or the interest therein of the Certificateholders,”
Defendant’s “specific obligations as trustee take effect.” BlackRock MJ Opinion,
2017 WL 953550, at *2 (quoting ABFC 2006-OPT1 PSA § 2.03(a)). Specifically,
Defendant
must promptly notify the originator or seller of the
defect in the particular loan. If the seller fails to cure or
repurchase the defective loan within either 120 days (if
the defect is a missing document) or 90 days (if the
defect is an R&W breach), [Defendant] must then
“enforce such Originator’s or the Seller’s obligation ... to
repurchase such Mortgage Loan.
Id. (omission in original) (quoting ABFC 2006-OPT1 PSA § 2.03(a)). The
Consolidated Plaintiffs contend that Defendant failed to discharge these
obligations.
With regard to Section 8.01, Defendant’s obligations
19

are triggered by actual knowledge or written notice of an
[Event of Default (“EOD”)]: “[T]he Trustee shall not be
charged with knowledge of any failure by the Servicer to
comply with the obligations of the Servicer referred to in
clauses (i) and (ii) of Section 7.01(a) or any Servicer
Event of Termination unless a Responsible Officer of the
Trustee at the Corporate Trust Office obtains actual
knowledge of such failure or the Trustee receives written
notice of such failure from the Servicer, the NIMS
Insurer or the Majority Certificateholders. In the
absence of such receipt of such notice, the Trustee may
conclusively assume that there is no Servicer Event of
Termination.”
BlackRock MJ Opinion, 2017 WL 953550, at *3 (second alteration in original)
(quoting ABFC 2005-OPT1 PSA § 8.01). Once Defendant had the requisite
knowledge or notice, “it was required to ‘exercise such of the rights and powers
vested in it by this Agreement, and use the same degree of care and skill in
their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person’s own affairs.’” Id. (quoting ABFC
2006-OPT1 PSA § 8.01). The Consolidated Plaintiffs contend that Defendant
failed to do so.
In light of these contentions and the contract language on which they are
based, the Consolidated Plaintiffs take issue with the Sampling Opinion’s
conclusions regarding the usefulness of sampling as a means of obtaining
evidence relevant to and probative of Defendant’s alleged breaches. (Pl.
Sampling Br. 10-15). At the heart of the problem for the Consolidated Plaintiffs
is a purported misunderstanding of the Consolidated Plaintiffs’ ultimate
burden of proof. (Id. at 10-15). The parties agree, and the contracts are clear,
that Defendant’s pre-event-of-default obligations arose upon “discovery or

20

receipt of written notice” of (i) any “materially defective” or missing document,
or (ii) the breach by an originator or seller of any representation or warranty
that “materially adversely” affected the value of a loan. BlackRock MJ Opinion,
2017 WL 953550, at *2 (quoting ABFC 2006-OPT1 PSA § 2.03(a)). And
Defendant’s post-event-of-default obligations arose when Defendant had actual
knowledge or written notice of a servicer’s failure to comply with its obligations.
Id. at *3 (quoting ABFC 2005-OPT1 PSA § 8.01). But the parties dispute the
definition of “discovery.” The Consolidated Plaintiffs contend that “discovery”
as used in Section 2.03 requires only inquiry or constructive notice. (Pl.
Sampling Br. 15-19). Defendants counter that to “actually ‘discover’ individual
R&W breaches,” Defendant “must obtain knowledge of them.” (Def. Sampling
Opp. 9). Thus, “testing [Defendant’s] ‘discovery’ of R&W breaches requires
[i] identifying the specific R&W breach at issue and [ii] examining what
[Defendant] knew about the breach and when it acquired the knowledge.” (Id.).
In support of their claim, the Consolidated Plaintiffs cite to the March 30
Opinion and its recognition that “while ‘[l]earning of facts merely suggestive of a
breach would not require the Trustee to immediately raise a claim,’ ‘upon
receipt of such notice, it becomes incumbent upon the [Trustee] to pick up the
scent and nose to the source.” BlackRock DJ Opinion, 2017 WL 1194683, at
*10 (alterations and emphasis in original) (quoting Policemen’s Annuity &
Benefit Fund of City of Chi. v. Bank of Am., NA, 907 F. Supp. 2d 536, 553
(S.D.N.Y. 2012)). The Consolidated Plaintiffs also highlight two cases that do
not sway this Court: They note that in Bank of New York Mellon Trust

21

Company, National Association v. Morgan Stanley Mortgage Capital, Inc., No. 11
Civ. 505 (CM) (GWG), 2013 WL 3146824, (S.D.N.Y. June 19, 2013), the court
held that “[a] party discovers a breach when it knows or should know that the
breach has occurred” id. at *19 (emphasis added) (quoting Morgan Guar. Tr. Co.
of N.Y. v. Bay View Franchise Mortg. Acceptance Co., No. 00 Civ. 8613 (SAS),
2002 WL 818082, at *5 (S.D.N.Y. Apr. 30, 2002)). (Pl. Sampling. Br. 15).
Though the Second Circuit vacated and remanded the case on appeal, the
Consolidate Plaintiffs point out that the Circuit affirmed as correct the district
court’s observation that “the law charges a party with discovery of breach only
after it has had a reasonable opportunity to investigate and confirm its
suspicions — in short, when it effectively becomes aware, rather than simply
suspicious, of breach,” Bank of N.Y. Mellon Tr. Co. v. Morgan Stanley Mortg.
Capital, Inc., 821 F.3d 297, 310 (2d Cir. 2016). (Pl. Sampling. Br. 15). And in
Assured Guaranty Municipal Corp. v. Flagstar Bank, FSB, 920 F. Supp. 2d 475
(S.D.N.Y. 2013), the court found that an insurer’s repurchase demand had
informed the servicer of pervasive breaches affecting charged-off loans, and was
sufficient to trigger those of the servicer’s obligations that were premised on its
“becoming aware of” an R&W breach, id. at 512-13. (Pl. Sampling Br. 16).
This, the Consolidated Plaintiffs contend, affirms the proposition that “inquiry
notice” or constructive awareness is sufficient to trigger contract obligations
that came into effect upon a servicer’s “becoming aware of” — i.e.,
discovering — an R&W breach. (Id.).

22

Additionally, the Consolidated Plaintiffs contend that Judge Netburn
misapplied contract interpretation principles to the parties’ contracts. (Pl.
Sampling Br. 16-20). Judge Netburn found that “[e]quating ‘discovery’ with
constructive knowledge [was] inconsistent with the bargained-for terms of the
PSAs, which limit [Defendant’s] pre-EOD duties as trustee to the four corners
of the governing agreements.” BlackRock MJ Opinion, 2017 WL 953550, at *7
(citing ABFC 2005-HE2 PSA § 8.01 (requiring the trustee, prior to a Servicer
EOD, to “perform such duties and only such duties as are specifically set forth
in this Agreement”)). But the Consolidated Plaintiffs argue that what is
inconsistent with the bargained-for terms of the PSAs is Judge Netburn’s
treatment of “discovery” and “actual knowledge” as synonymous, when the use
of two different terms to address two different subjects in two different sections
of the PSAs must be given meaning. (Pl. Sampling Br. 19).
The Consolidated Plaintiffs are correct in their identification of relevant
contract-interpretation principles. But Judge Netburn was equally correct that
“discovery” requires more than inquiry notice. Indeed, the Court finds these
two positions reconcilable: Allowing that “discovery” and “actual knowledge”
are different terms that must be given different meanings does not compel the
Court to hold that “discovery” must mean constructive knowledge or inquiry
notice in order to mean something other than “actual knowledge.” There is
more daylight between these concepts than the Consolidated Plaintiffs admit.
Judge Netburn reasoned that
[t]he repurchase remedy contemplated in Section 2.03
rests on the ability of an RMBS trustee to undertake
23

concrete measures (i.e., enforce the originator’s or the
seller’s repurchase obligation) with respect to a specific
defect, in a specific loan, in a specific trust. A trustee
cannot undertake those measures without knowing the
specific missing document or the specific breach.
Without specific proof that the trustee knew of the
particular breach, the plaintiffs cannot establish that
the trustee failed to act.
BlackRock MJ Opinion, 2017 WL 953550, at *6. And this reasoning is logical
and correct. But the fact that a trustee cannot undertake the contractually
required measures without knowing of a specific defect, in a specific loan, in a
specific trust should not also permit a trustee to avoid its obligations under
this Section through a stance of willful blindness. True, because Defendant
cannot be required to investigate under the parties’ contracts, Defendant
cannot be held liable for breach on the basis of constructive knowledge.
However, Defendant cannot avoid liability by willfully blinding itself for the
purpose of disclaiming knowledge.
It is thus plausible to the Court that the Consolidated Plaintiffs could
demonstrate “discovery” through a showing of conscious avoidance or implied
actual knowledge, either of which would impose a higher burden than
“constructive knowledge,” but both of which are different than “actual
knowledge.” See, e.g., Fraternity Fund Ltd. v. Beacon Hill Asset Mgmt., LLC, 479
F. Supp. 2d 349, 368 (S.D.N.Y. 2007). While “[c]onstructive knowledge is
‘[k]nowledge that one using reasonable care or diligence should have, and
therefore that is attributed by law to a given person[,]’” id. (quoting BLACK’S LAW
DICTIONARY (8th ed. 2004) (knowledge)), “[c]onscious avoidance, on the other
hand, occurs when ‘it can almost be said that the defendant actually knew’
24

because he or she suspected a fact and realized its probability, but refrained
from confirming it in order later to be able to deny knowledge,” id. (emphasis
added) (quoting United States v. Nektalov, 461 F.3d 309, 315 (2d Cir. 2006));
see also BLACK’S LAW DICTIONARY (10th ed. 2014) (distinguishing between
(i) “express actual knowledge,” which is defined as “[d]irect and clear
knowledge,” (ii) “implied actual knowledge,” which is defined as “[k]nowledge of
information that would lead a reasonable person to inquire further,” and
(iii) “constructive knowledge,” which is defined as “[k]nowledge that one using
reasonable care or diligence should have, and therefore that is attributed by
law to a given person”); cf. id. (defining “willful blindness” as “[d]eliberate
avoidance of knowledge of a crime, [especially] by failing to make a reasonable
inquiry about suspected wrongdoing despite being aware that it is highly
probable” and noting that it “creates an inference of knowledge”).
This, the Court reasons, is the sentiment underlying the case law on
which the Consolidated Plaintiffs rely. Bank of New York Mellon, Flagstar, and
even the Court’s March 30 Opinion all accept that where certain facts indicated
a party should have been aware of a breach, that party cannot disclaim its
discovery simply because it avoided express actual knowledge. At some point,
“when ‘it can almost be said that [Defendant] actually knew’ because
[Defendant] suspected a fact and realized its probability, but refrained from
confirming it in order later to be able to deny knowledge,” there arises a duty to
nose to the source. Fraternity Fund Ltd., 479 F. Supp. 2d at 368 (emphasis

25

added) (quoting Nektalov, 461 F.3d at 315). This case law is reconcilable with
the Sampling Opinion, not contrary to it.
Ultimately, the Court does not need to decide the issue of the allocation
of burdens at this stage in order to uphold the Sampling Opinion. For, as the
Sampling Opinion found, at issue here is only a discovery motion, and the
Court’s consideration of the parties’ ultimate burdens is only intended to guide
the Court’s review of Judge Netburn’s proportionality analysis. For now, it
suffices to say that it was not clear error in light of the foregoing discussion for
Judge Netburn to conclude for purposes of her proportionality analysis that
proof of “discovery” would require more than mere constructive knowledge or
inquiry notice.
ii.

It Was Not Clear Error to Conclude That
Sampling Is Not Proportional to the Needs of
the Case

The focus of the Sampling Opinion’s Rule 26 proportionality analysis was
on “the importance of the discovery in resolving the issues” and “whether the
burden or expense of the proposed discovery outweigh[ed] its likely benefit.”
BlackRock MJ Opinion, 2017 WL 953550, at *3 (internal quotation marks
omitted) (quoting Fed. R. Civ. P. 26(b)(1)). The Sampling Opinion denied the
Consolidated Plaintiffs’ motion to re-underwrite a sampling of loans for the
purpose of proving Defendant’s liability or damages beyond the loans in the
sample because sampling was (i) not discovery required for resolution of the

26

issues in these cases and (ii) discovery so burdensome and expensive that its
burden and expense outweighed its likely benefit. Id. at *3-9.
More specifically, Judge Netburn found that sampling could not help the
Consolidated Plaintiffs identify the loans in breach, demonstrate that any
breaches materially adversely affected particular loans, or ascertain the loanspecific cure and repurchase remedy. BlackRock MJ Opinion, 2017 WL
953550, at *6. Judge Netburn rejected as inapposite cases factually distinct
from the instant cases where sampling was permitted, and found that none
counseled her to authorize the discovery here in light of its expense, burden,
and unhelpfulness. Id. Because “discovery” here required more than a
showing of constructive knowledge, Judge Netburn reasoned that sampling
could not help the Consolidated Plaintiffs to demonstrate that any “discovery”
had occurred. Id. at *7-8. Nor could it help the Consolidated Plaintiffs with
their post-EOD breach claims: “Generalized information indicating the trusts
with loan defaults or R&W breaches cannot substitute for proof that servicers
had actual knowledge of loan-specific R&W breaches and that Wells Fargo
actually knew of the servicers’ failure to report those breaches.” Id. at 8
(emphasis in original). And finally, Judge Netburn found that any sampling
performed today would shed little light, if any, on whether sampling should
have been performed in the past by a “prudent person” or on what might have
been uncovered if it had been. Id. at *9. As she concluded: “It is not clear how
sampling can show that after performing an investigation, [Defendant] would
have located the specific breaching loans outside of a sample based on the

27

existence and rate of defective loans within the given sample.” Id. (emphasis in
original).
This Court can find no error in Judge Netburn’s thorough reasoning.
This Court accepts, as did Judge Netburn, that in other cases, sampling has
been sufficiently useful to justify its burden and expense. Not so here. The
Court concurs with Judge Netburn’s conclusion that the minimal benefits that
sampling could provide to the Consolidated Plaintiffs are outweighed by the
discovery’s burden and expense in light of the fact that “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.” BlackRock MJ Opinion, 2017 WL 953550, at *4.
Judge Netburn’s Rule 26 analysis was neither contrary to law nor clearly
erroneous. The Sampling Motion is denied and Plaintiffs’ objections thereto
dismissed.
3.

The 30(b)(6) Motion Is Denied and the Objections Raised
Therein Overruled
a.

Federal Rule of Civil Procedure 30(b)(6)

As relevant here, Federal Rule of Civil Procedure 30(b)(6) permits a party,
“[i]n its notice or subpoena,” to “name as the deponent a public or private
corporation, ... and must describe with reasonable particularity the matters for
examination.” Fed. R. Civ. P. 30(b)(6). “The named organization must then
designate one or more officers, directors, or managing agents, or designate
other persons who consent to testify on its behalf; and it may set out the
matters on which each person designated will testify.” Id. Persons designated
28

are required to “testify about information known or reasonably available to the
organization.” Id.
“To satisfy Rule 30(b)(6), [a] corporate deponent has an affirmative duty
to make available such number of persons as will be able to give complete,
knowledgeable and binding answers on its behalf.” Bush v. Element Fin. Corp.,
No. 16 Civ. 1007 (RJS), 2016 WL 8814347, at *2 (S.D.N.Y. Dec. 13, 2016)
(quoting Reilly v. Natwest Markets Grp. Inc., 181 F.3d 253, 268 (2d Cir. 1999));
accord Coty Inc. v. Excell Brands, LLC, No. 15 Civ. 7029 (JMF), 2016 WL
7187630, at *2 (S.D.N.Y. Dec. 9, 2016). “After a deposing party serves a
‘satisfactory notice,’ the responding party must ‘make a conscientious goodfaith endeavor to designate the persons having knowledge of the matters
sought by the party noticing the deposition and to prepare those persons in
order that they can answer fully, completely, unevasively, the questions posed
as to the relevant subject matters.’” Bush, 2016 WL 8814347, at *2 (quoting
Soroof Trading Dev. Co. v. GE Fuel Cell Sys., LLC, No. 10 Civ. 1391 (LGS) (JCF),
2013 WL 1286078, at *2 (S.D.N.Y. Mar. 28, 2013)). “‘Rule 30(b)(6) deponents
need not have personal knowledge concerning the matters set out in the
deposition notice,’ [but] ‘if they do not possess such personal knowledge ... the
corporation is obligated to prepare them so that they may give knowledgeable
answers.’” Id. (quoting Spanski Enters., Inc. v. Telewizja Polska, S.A., No. 07
Civ. 930 (GEL), 2009 WL 3270794, at *3 (S.D.N.Y. Oct. 13, 2009)); accord Coty
Inc., 2016 WL 7187630, at *2; Zappia Middle E. Const. Co. v. Emirate of Abu
Dhabi, No. 94 Civ. 1942 (DC), 1995 WL 686715, at *4 (S.D.N.Y. Nov. 17, 1995)

29

(“While Rule 30(b)(6) ‘is not designed to be a memory contest[,]’ the deponents
must be both knowledgeable about a given area and prepared to give complete
and binding answers on behalf of the organization.” (alteration in original)
(quoting EEOC v. Am. Int’l Grp., Inc., No. 93 Civ. 6390 (PKL) (RLE), 1994 WL
376052, at *3 (S.D.N.Y. July 18, 1994))), order clarified sub nom. Zappia Middle
E. Constr. Co. v. Emirate of Abu Dhabi, No. 94 Civ. 1942 (KMW), 1995 WL
758767 (S.D.N.Y. Dec. 21, 1995).
“A Rule 30(b)(6) deposition notice, like other forms of discovery, is subject
to the limitations under Rule 26 of the Federal Rules of Civil Procedure.” City
of N.Y. v. Fedex Ground Package Sys., Inc., No. 13 Civ. 9173 (ER), 2016 WL
1718261, at *5 (S.D.N.Y. Apr. 27, 2016) (citing Dealer Comp. Servs. v. Curry,
No. 12 Civ. 3457 (JMF) (JLC), 2013 U.S. Dist. LEXIS 18315, at *3-4, 2013 WL
499520 (S.D.N.Y. Feb. 7, 2013)); see also Fed. R. Civ. P. 30 Advisory
Committee’s Note to 2015 Amendment (“Rule 30 is amended in parallel with
Rules 31 and 33 to reflect the recognition of proportionality in Rule 26(b)(1).”);
In re Weatherford Int’l Sec. Litig., No. 11 Civ. 1646 (LAK) (JCF), 2013 WL
2355451, at *5 (S.D.N.Y. May 28, 2013) (utilizing proportionality analysis to
determine that defendants must produce Rule 30(b)(6) witness). “When a party
subpoenas a corporation pursuant to F.R.C.P. 30(b)(6), ... ‘[t]he party issuing
the subpoena must demonstrate that the information sought is relevant and
material to the allegations and claims at issue in the proceedings.’” Albino v.
Glob. Equip. USA, Ltd., No. 6:14 Civ. 6519 (MAT), 2017 WL 3130380, at *1-2
(W.D.N.Y. July 24, 2017) (quoting Night Hawk Ltd. v. Briarpatch Ltd., LP,

30

No. 03 Civ. 1382 (RWS), 2003 WL 23018833, at *8 (S.D.N.Y. Dec. 23, 2003)).
“[A]n overly broad [Rule] 30(b)(6) ‘notice subjects the noticed party to an
impossible task,’ because, where it is not possible to ‘identify the outer limits of
the areas of inquiry noticed, compliant designation is not feasible.’” EngHatcher v. Sprint Nextel Corp., No. 07 Civ. 7350 (BSJ) (KNF), 2008 WL
4104015, at *4 (S.D.N.Y. Aug. 28, 2008) (quoting Reed v. Bennett, 193 F.R.D.
689, 692 (D. Kan. 2000)).
b.

The 30(b)(6) Order Was Not Clearly Erroneous or
Contrary to Law

In essence, the BlackRock Plaintiffs argue that Judge Netburn failed to
weigh the Rule 26 factors properly, and that this failure constituted clear error.
At a more granular level, the BlackRock Plaintiffs argue:
(i) The 30(b)(6) Order overruled BlackRock’s objections
to the overbroad topics, effectively requiring the
BlackRock Plaintiffs to produce “one or more
omniscient individuals to recount orally the policies,
practices, and operations of an entire organization and
its numerous employees.” (Pl. 30(b)(6) Br. 3-4).
(ii) The Order overruled the BlackRock Plaintiffs’
objections to topics that are not narrowly tailored to
address outstanding discovery matters and target
evidence duplicative of discovery Defendant has already
obtained. (Id. at 4).
(iii) “Requiring live testimony from a multitude of
corporate designees would be unnecessarily cumulative
and unduly burdensome,” particularly given the
availability of alternative means for the provision of
“corporate testimony.” (Id. at 5-6).
(iv) It is such a “practical impossibility” for the
BlackRock Plaintiffs to prepare a witness to address all
of the noticed topics that these Plaintiffs can only
conclude the topics were “deliberately calculated to
31

ensure Plaintiffs’ failure to comply, thus resulting in
serial motion practice and further depositions.” (Id. at
5-6).
(v) “[T]he topics seek information about Trusts,
securities, or parties that are not at issue in this action,”
and “[a]s such, ... seek information that is not relevant
to the claims or defenses at issue in this action.” (Id. at
6).
(vi) “[S]everal of the Topics improperly seek information
protected by the attorney-client privilege or workproduct doctrine.” (Id.).
(vii) Finally, the BlackRock Plaintiffs also complain that
the 30(b)(6) Order did not evidence any analysis of their
objections nor describe its reasons for overruling them.
(Id. at 4). 4
In spite of the many words employed to explain it, the BlackRock
Plaintiffs’ argument is simple: Because Judge Netburn failed to adopt the
BlackRock Plaintiffs’ proportionality analysis, her proportionality analysis was
of necessity clearly erroneous and contrary to the law. This Court is not
convinced. The 30(b)(6) Order correctly recites the relevant legal standards.
The “measured ruling” then applies these standards, to each of the noticed
deposition topics one by one, sustaining some topics here, narrowing overbroad topics there, and rejecting other topics wholesale. (Def. 30(b)(6) Opp. 10;
see also Def. 30(b)(6) Sur-Reply 9). Far from being “left with the definite and
firm conviction that a mistake has been committed,” Lifeguard Licensing Corp.,

4

The BlackRock Plaintiffs indicate that this constellation of objections applies with equal
force to the portion of the 30(b)(6) Order that addresses 30(b)(6) topics noticed with
regard to all of the BlackRock Plaintiffs and to the portion that addresses topics noticed
with respect to specific Plaintiffs. (Pl. 30(b)(6) Br. 11).

32

2017 WL 3142072, at *1 (quoting Frydman, 2017 WL 1155919, at *2), the
Court is left with an impression of care and precision.
The Court has closely followed Judge Netburn’s management of discovery
throughout the pendency of these cases and concurs with Defendant’s
conclusion that Judge Netburn’s fastidious work has “give[n] her a firm basis
to understand the relevant factual issues and to assess the relevant burdens of
the requested discovery.” (Def. 30(b)(6) Opp. 8). Without restating Defendant’s
description of Judge Netburn’s “substantial efforts ... to oversee discovery in
this action” (id. at 2; see also id. at 8-11), the Court here adopts Defendant’s
account by reference. In light of these facts, and consistent with the law in this
Circuit, the Court is appropriately deferential to Judge Netburn’s discovery
assessments when analyzing them on a motion under Rule 72.
The Court emphasizes that Rule 72 is not a vehicle for the relitigation of
arguments rejected by Judge Netburn in her non-dispositive discovery order.
(See Def. 30(b)(6) Opp. 11-12 & n.37). The BlackRock Plaintiffs have not
identified any clear error in the 30(b)(6) Order, nor has the Court found any in
its review thereof. The Court appreciates the great burden that the requested
discovery imposes on the BlackRock Plaintiffs (Pl. 30(b)(6) Br. 8-10; Pl. 30(b)(6)
Reply 3-4), but does not believe it was error for Judge Netburn to permit such
discovery in light of the fact that this is a “multi-party litigation, with thirtythree plaintiffs organized in six affiliated groups seeking to act as class
representatives for an unknown number of persons claiming interests in twelve
RMBS trusts that they describe as having been originally collateralized by

33

$11.6 billion in underlying loans.” (Def. 30(b)(6) Opp. 16; see also Def. 30(b)(6)
Sur-Reply 8). The burden of discovery is also weighed against its unique
importance, given the binding nature of 30(b)(6) testimony. (Def. 30(b)(6)
Opp. 16-17). 5 Though the BlackRock Plaintiffs object to the topics’ inclusion of
the word “including,” the Court agrees with Defendant that the word is used
only to clarify the topics noticed and not to expand them. (Id. at 13-14). And
to the extent that the noticed topics seek privileged information, Judge Netburn
specifically indicated that her rulings in the 30(b)(6) Order did “not preclude an
appropriate privilege assertion at the time of the deposition.” (Dkt. #422, at 4
n.1).
In sum: Judge Netburn considered properly the Rule 26 factors, and her
30(b)(6) Order was neither clearly erroneous nor contrary to law. Thus, the
30(b)(6) Motion must be denied and the BlackRock Plaintiffs’ objections thereto
overruled. 6

5

The BlackRock Plaintiffs’ arguments that non-30(b)(6) testimony can be binding upon a
company’s consent is unhelpful given that the BlackRock Plaintiffs have not provided
the Court with proof of such consent in this case. (See Pl. 30(b)(6) Reply 7-8).

6

The Court notes that it reaches this analysis notwithstanding the deposition testimony
introduced by the BlackRock Plaintiffs in support of their 30(b)(6) reply. (See Galdston
30(b)(6) Reply Decl., Ex. 1-24). Even if it were proper in these circumstances for the
Court to consider evidence that was not presented to Judge Netburn in the Court’s
review of the 30(b)(6) Order, these depositions would not change the Court’s conclusion
that the 30(b)(6) Order was neither clearly erroneous nor contrary to law, for the
reasons described above in this section. See, e.g., Verint Sys. Inc. v. Red Box Recorders
Ltd., 183 F. Supp. 3d 467, 470 (S.D.N.Y. 2016) (“In reviewing the decision of a
magistrate judge, a district judge should not consider ‘factual evidence that was not
presented to the magistrate judge.’” (quoting Thai Lao Lignite (Thailand) Co. v. Gov’t of
Lao People’s Democratic Republic, 924 F. Supp. 2d 508, 512 (S.D.N.Y. 2013)).

34

B.

The Motion to Supplement and Substitute Is Granted
1.

Federal Rule of Civil Procedure 15

Federal Rule of Civil Procedure 15 allows a court, “[o]n motion and
reasonable notice,” and “on just terms,” to “permit a party to serve a
supplemental pleading setting out any transaction, occurrence, or event that
happened after the date of the pleading to be supplemented. The court may
permit supplementation even though the original pleading is defective in
stating a claim or defense.” Fed. R. Civ. P. 15(d). “As a general matter,
Rule 15(d) ‘reflects a liberal policy favoring a merit-based resolution of the
entire controversy between the parties.’” Beckett v. Inc. Vill. of Freeport, No. 11
Civ. 2163 (LDW) (AKT), 2014 WL 1330557, at *9 (E.D.N.Y. Mar. 31, 2014)
(quoting Witkowich v. Gonzales, 541 F. Supp. 2d 572, 590 (S.D.N.Y. 2008)).
The Second Circuit has indicated that “[a] district court may grant a
motion to file a supplemental pleading ‘in the exercise of its discretion, upon
reasonable notice and upon such terms as may be just.’” Chen-Oster v.
Goldman, Sachs & Co., No. 10 Civ. 6950 (AT) (JCF), 2017 WL 1378265, at *8
(S.D.N.Y. Apr. 12, 2017) (quoting Quaratino v. Tiffany & Co., 71 F.3d 58, 66 (2d
Cir. 1995)). “Absent undue delay, bad faith, dilatory tactics, and undue
prejudice to the party to be served with the proposed pleading, or futility, the
motion should be freely granted.” Id. (internal quotation marks omitted)
(quoting Quaratino, 71 F.3d at 66); see also Bornholdt v. Brady, 869 F.2d 57,
68 (2d Cir. 1989) (“An application for leave to file a supplemental pleading is
addressed to the discretion of the court, and permission should be freely

35

granted where such supplementation will promote the economic and speedy
disposition of the controversy between the parties, will not cause undue delay
or trial inconvenience, and will not prejudice the rights of any other party.”).
“The burden is on the non-moving party to demonstrate the existence of such
grounds.” Growblox Scis., Inc. v. GCM Admin. Servs., LLC, No. 14 Civ. 2280
(ER), 2016 WL 1718388, at *4 (S.D.N.Y. Apr. 29, 2016).
To analyze whether a party has carried this burden, a court utilizes the
same standard as that applied to a motion to amend brought under Rule 15(a).
See, e.g., Klein v. PetroChina Co., 644 F. App’x 13, 15 (2d Cir. 2016) (summary
order); Escoffier v. City of N.Y., No. 13 Civ. 3918 (JPO) (DF), 2017 WL 65322, at
*2 (S.D.N.Y. Jan. 4, 2017) (“[C]ourts adhere to the same liberal standards in
determining motions brought under any of these provisions.”), report and
recommendation adopted, No. 13 Civ. 3918 (JPO), 2017 WL 3206337 (S.D.N.Y.
July 27, 2017); Lin v. Toyo Food, Inc., No. 12 Civ. 7392 (KMK), 2016 WL
4502040, at *1 (S.D.N.Y. Aug. 26, 2016). Leave to amend may be denied if the
amendment would be futile, see, e.g., Knife Rights, Inc. v. Vance, 802 F.3d 377,
389 (2d Cir. 2015), as where the “amended portion of the complaint would fail
to state a cause of action,” Parker v. Columbia Pictures Indus., 204 F.3d 326,
339 (2d Cir. 2000); see also Kassner v. 2nd Ave. Delicatessen Inc., 496 F.3d
229, 244 (2d Cir. 2007) (holding that amended complaint must be “sufficient to
withstand a motion to dismiss under [Federal Rule of Civil Procedure]
12(b)(6)”). Leave to amend may also be denied “when a party has been given
ample prior opportunity to allege a claim,” De Jesus v. Sears, Roebuck & Co.,

36

Inc., 87 F.3d 65, 72 (2d Cir. 1996), or “where the motion is made after an
inordinate delay, no satisfactory explanation is offered for the delay, and the
amendment would prejudice the defendant,” Cerni v. J.P. Morgan Sec. LLC, 208
F. Supp. 3d 533, 543-44 (S.D.N.Y. 2016) (internal quotation mark omitted)
(quoting Kenney v. Clay, 172 F. Supp. 3d 628, 643 (N.D.N.Y. 2016)).
“The concepts of delay and undue prejudice are interrelated — the longer
the period of unexplained delay, the less will be required of the non-moving
party in terms of a showing of prejudice.” Davidowitz v. Patridge, No. 08 Civ.
6962 (NRB), 2010 WL 1779279, at *2 (S.D.N.Y. Apr. 23, 2010) (citing Evans v.
Syracuse City Sch. Dist., 704 F.2d 44, 46-47 (2d Cir. 1983)). “In determining
what constitutes ‘prejudice,’ [courts] generally consider whether the assertion
of the new claim or defense would ‘(i) require the opponent to expend
significant additional resources to conduct discovery and prepare for trial;
(ii) significantly delay the resolution of the dispute; or (iii) prevent the plaintiff
from bringing a timely action in another jurisdiction.’” Monahan v. N.Y.C. Dep’t
of Corr., 214 F.3d 275, 284 (2d Cir. 2000); accord Lin, 2016 WL 4502040, at
*1. 7

7

Though the NCUAB seeks to supplement its pleading long after a Rule 16 scheduling
order was filed, it is not clear to the Court that NCUAB is required to show “good cause”
under Federal Rule of Civil Procedure 16(b)(4) “since this latter provision pertains solely
to motions to amend — not motions to supplement pleadings.” Beckett v. Inc. Vill. of
Freeport, No. 11 Civ. 2163 (LDW) (AKT), 2014 WL 1330557, at *6 (E.D.N.Y. Mar. 31,
2014) (emphases in original); Watson v. Wright, No. 08 Civ. 960 (A)(M), 2011 WL
1118608, at *5 (W.D.N.Y. Jan. 11, 2011) (“Unlike motions to amend ... Rule 16’s plain
language does not require courts to set a deadline for filing a motion to supplement and
the parties in this case did not set such a deadline in their Scheduling Order.”), adopted
by 2011 WL 1099981 (W.D.N.Y. Mar 24, 2011). Neither party has argued that a “good
cause” showing is required. The Court will not therefore consider expressly whether
“good cause” has been shown, though it believes that if it were to analyze the Motion to

37

2.

Federal Rule of Civil Procedure 17

Rule 17 dictates that every civil action must be prosecuted in the name
of the real party in interest. Fed. R. Civ. P. 17(a). If a court finds that an
action has been brought improperly by a party other than the real party in
interest, Rule 17 further instructs that “[t]he court may not dismiss an action
for failure to prosecute ... until, after an objection, a reasonable time has been
allowed for the real party in interest to ratify, join, or be substituted into the
action.” Fed. R. Civ. P. 17(a)(3); accord In re SLM Corp. Sec. Litig., 258 F.R.D.
112, 115 (S.D.N.Y. 2009). The Second Circuit has admonished district courts
that “[a] Rule 17(a) substitution of plaintiffs should be liberally allowed when
the change is merely formal and in no way alters the original complaint’s
factual allegations as to the events or the participants.” Advanced Magnetics,
Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 20 (2d Cir. 1997); accord House of
Europe Funding I Ltd. v. Wells Fargo Bank, N.A., No. 13 Civ. 519 (RJS), 2015
WL 5190432, at *2 (S.D.N.Y. Sept. 4, 2015).
3.

The NCUAB May Substitute the Separate Trustee as the
Derivative Claimant and the NCUAB as the Direct Claimant for
the Re-conveyed Certificates from the R5 and R6 Trusts
a.

The Separate Trustee May Be Substituted as the
Derivative Claimant

In the March 30 Opinion, the Court found that BNYM was the real party
in interest with regard to the NCUAB’s derivative claims because the Granting
Clause of the Indenture Agreement gave BNYM, in its capacity as Indenture

Supplement under a good-cause standard, the motion would still succeed for the
reasons outlined in this section.

38

Trustee, “all of [the Trusts’] right, title and interest in and to ... the Underlying
Securities ... , and all distributions thereon, ... [and] all present and future
claims, demands, causes, and choses in action in respect of the foregoing,
including ... the rights of the [Trusts (as the Issuers)] under the Underlying
Securities and Underlying Agreements.” BlackRock DJ Opinion, 2017 WL
1194683, at *23 (alterations and omissions in original) (quoting Dkt. #82, at
¶ 33; Dkt. #82-2). BNYM has now granted part of its rights and authority
under the Indenture Agreement to the Separate Trustee through the Separate
Trustee Agreement. (See Pl. Supp. & Sub. Br. 7 (quoting Hall Supp. & Sub.
Decl., Ex. B, at § 1.1)).
i.

The Separate Trustee Has the Capacity to Sue

It is well-established that a trustee of an express trust has the capacity
to sue on its own behalf. The Court recognized as much implicitly in finding in
the March 30 Opinion that BNYM had the capacity to assert the derivative
claims brought by the NCUAB, and Defendant has not argued to the contrary.
See BlackRock DJ Opinion, 2017 WL 1194683, at *29; see also Fed. R. Civ.
P. 17(a)(1) (allowing that “a trustee of an express trust” may “sue in [its] own
name[] without joining the person for whose benefit the action is brought”).
“A trustee is a real party to the controversy where it ‘possesses certain
customary powers to hold, manage, and dispose of assets for the benefit of
others.’” Wells Fargo Bank Nw., N.A. v. Synergy Aerospace Corp., No. 16 Civ.
8065 (JPO), 2017 WL 3393945, at *4 (S.D.N.Y. Aug. 7, 2017) (quoting Navarro
Sav. Ass’n v. Lee, 446 U.S. 458, 464 (1980)). “Whether the trustee possesses

39

such powers is a question that is resolved based on the underlying trust
document.” Id. (quoting U.S. Bank Nat. Ass’n v. Nesbitt Bellevue Prop. LLC, 859
F. Supp. 2d 602, 606 (S.D.N.Y. 2012)). Here, pursuant to the underlying
Separate Trustee Agreement, the Separate Trustee has been granted “all legal
title, claims, powers, rights, authorities, and duties of the Indenture Trustee,
including pursuit of the Separate Trustee Claims ... in connection with the
Separate Trustee Claims.” (Pl. Supp. & Sub. Br. 7 (quoting Hall Supp. & Sub.
Decl., Ex. B, at § 1.1)). Plainly, the Separate Trustee now possesses powers to
hold, manage, and dispose of the assets implicated by the Separate Trustee
Claims.
ii.

The Proposed Substitution Is Not Invalid Because
the Separate Trustee Agreement Is Allegedly
Invalid

That said, Defendant does not accept that the Separate Trustee is the
real party in interest in this case. Instead, Defendant contends “[t]hat party
is — and has always been — BNYM.” (Def. Supp. & Sub. Opp. 6). Defendant
contests the Separate Trustee’s status on the basis of the propriety vel non of
the Separate Trustee Agreement, and the NCUAB’s role in orchestrating its
execution. More specifically, Defendant contends that BNYM lacked the
authority to appoint a Separate Trustee other than “for the purpose of meeting
legal requirements applicable to it in the performance of its duties.” (Id. at 4
(internal quotation marks omitted) (quoting Dkt. #82-2, at § 5.13(a))). In
support of this contention, Defendant notes that “nothing in [the NCUAB’s]
submission indicates that BNYM, as indenture trustee, made a determination

40

that the appointment is necessary to fulfill any legal requirement.” (Id. at 8).
Defendant also argues that the NCUAB is not empowered to “wield rights held
by the NGN Trust Noteholders” and “cause[] BNYM to appoint [its] lawyer,
Graeme W. Bush, as Separate Trustee.” (Id. at 5; see also id. at 7). And finally,
Defendant takes issue with the NCUAB’s provision of the Separate Trustee’s
compensation in light of the Indenture Agreement’s requirement that “any ...
separate trustee appointed pursuant to [its] Section 5.13 ... be compensated
only from the Indenture Trustee Fee or by the Indenture Trustee[.]” (Id. at 8
(omissions in original) (internal quotation marks omitted) (quoting Dkt. #82-2
§ 5.13(f))).
As a preliminary matter, the Court is not convinced that Defendant has
standing to challenge the validity of the Separate Trustee Agreement as a
means of challenging the Separate Trustee’s real-party-in-interest status.
(Compare Pl. Supp. & Sub. Br. 11-13, with Def. Supp. & Sub. Opp. 9-11).
Effectively, Defendant is seeking to enforce certain provisions of the Indenture
Agreement with which Defendant asserts the Separate Trustee Agreement is
noncompliant. However, it is well-established that a party may not act to
enforce agreements to which it was not a party nor of which it was not an
intended beneficiary. Rajamin v. Deutsche Bank Nat’l Tr. Co., 757 F.3d 79, 87
(2d Cir. 2014) (affirming district court’s ruling “that plaintiffs lacked standing
to enforce the agreements to which they were not parties and of which they
were not intended beneficiaries”); see also, e.g., Cohen v. DHB Indus., Inc., 658
F. App’x 593, 594-95 (2d Cir. 2016) (summary order) (holding that nonparty to

41

settlement agreement could not enforce rights provided therein unless he was a
third-party beneficiary); Lopez v. Bayview Loan Servicing, LLC, No. 16 Civ. 2610
(JPO), 2017 WL 3396421, at *5-6 (S.D.N.Y. Aug. 8, 2017) (affirming and
applying holding of Rajamin that assignments’ alleged noncompliance with
trust agreements might have made assignments unenforceable, but only at the
instance of parties to or intended beneficiaries of the agreements). But even if
Defendant could challenge the Separate Trustee’s real-party-in-interest status
on this basis, the challenge could not succeed because any conflict between the
Indenture Agreement and Separate Trustee Agreement would not render either
void. A trustee’s unauthorized acts do not automatically void an agreement:
“[A]n unauthorized act by the trustee is not void but merely voidable by the
beneficiary.” Rajamin, 757 F.3d at 89 (emphasis added).
The challenge would also fail at a more fundamental level, because
Defendant has not shown the existence of any true conflict between the
agreements. Beginning with Defendant’s contention that the appointment of
the Separate Trustee was in some way improper, the Court finds that even if
BNYM appointed the Separate Trustee at the NCUAB’s request, and even if the
Separate Trustee has his own relationship with the NCUAB, BNYM appointed
the Separate Trustee pursuant to its own authority under the applicable NGN
Indenture Agreements. (See Dkt. #82-2, at §§ 5.13, 11.05). The fact that the
NCUAB requested or suggested the appointment of the Separate Trustee in no
way compelled BNYM to make that appointment; BNYM did so consistent with
its contractual obligation to “cooperate in all respects with any reasonable

42

request by the [NCUAB as] Guarantor for action to preserve or enforce the
Guarantor’s ... interests under this Indenture.” (Pl. Supp. & Sub. Reply
(omission in original) (quoting Dkt. #82-2, at § 11.05)).
The Court also agrees with the NCUAB that while the language of § 5.13
empowers BNYM to appoint a separate trustee to meet legal requirements
applicable to it in the performance of its duties, that language does not plainly
limit BNYM to appointing a separate trustee only for that purpose. (Pl. Supp. &
Sub. Reply 2-3). But even if it did, the Court finds it plausible that the
appointment of the Separate Trustee would fall within its bounds. Under the
Indenture Agreements, BNYM was empowered and authorized
to do all things not inconsistent with the provisions of
[the] Indenture that it may deem advisable in order to
enforce the provisions hereof or to take any action with
respect to a default or an Event of Default hereunder,
or to institute, appear in or defend any suit or other
proceeding with respect hereto, or to protect the
interests of the Noteholders and the Guarantor. The
Indenture Trustee shall not be answerable or
accountable except for its own bad faith, willful
misconduct or negligence.
(Dkt. #82-2, at § 5.01(a)(i)). The Agreements also empowered BNYM to institute
legal proceedings to enforce noteholders’ rights upon the incidence and
continuance of an event of default. (Id. at § 4.03(b)). Reading these sections
together, and in the context of the broader Indenture Agreement, the Court
believes BNYM could claim the appointment of the Separate Trustee was
necessary to permit it to meet the legal requirements applicable to it in the
performance of its duties.

43

Finally, the Court agrees that the Trust Agreement’s joint-action
requirement does not preclude on its face an action taken by the Separate
Trustee with the Indenture Trustee’s consent. Nor does the Trust Agreement
preclude a payment structure that is compliant with the Indenture Agreement
in effect. What the Indenture Agreement does do is limit BNYM’s actions to
those “not inconsistent with the provisions of [the] Indenture that it may deem
advisable in order to enforce the provisions hereof[.]” (Dkt. #82-2, at
§ 5.01(a)(i)). Thus, BNYM’s consent to the terms of the Separate Trustee
Agreement evidences to the Court BNYM’s belief that the terms outlined therein
are “not inconsistent” with the Indenture Agreement’s provisions. At this stage,
the Court credits that interpretation.
iii.

The Proposed Substitution Is Not Improper
Because of Its Scope

Defendant also argues that substitution should not be permitted because
it “would ‘require more than a merely formal alteration of the complaint.’” (Def.
Supp. & Sub. Opp. 11 (quoting Cortlandt St. Recovery Corp. v. Hellas
Telecomms., S.á.r.l, 790 F.3d 411, 424 (2d Cir. 2015)). Because the substance
of the complaint will need to be modified to include new factual allegations
describing “the circumstances of [the Separate Trustee’s] appointment, the
alleged basis for that appointment, and [the Separate Trustee’s] citizenship, ...
allowing the substitution would inject new factual legal questions into this
case, requiring additional discovery and prolonging litigation.” (Id. at 12). With
this, the Court agrees in part: If substitution itself required the amendment of

44

the Complaint’s substantive allegations, it would be more than merely formal.
Fortunately, the Court finds it does not.
In support of its argument to the contrary, Defendant correctly indicates
that in Cortlandt St. Recovery Corp. v. Hellas Telecommunications., S.á.r.l, 790
F.3d 411 (2d Cir. 2015), the Second Circuit affirmed a district court’s refusal to
permit the plaintiff to remedy a standing defect through a Rule 17(a)
ratification. The Court found that Rule 17(a) ratification would be (i) futile,
because it would only destroy diversity jurisdiction in attempting to remedy
standing, and (ii) improper because it would require more than a “merely
formal” change to the complaint and would alter the “complaint’s factual
allegations as to the events or the participants.” Id. at 423-24 (quoting
Advanced Magnetics, Inc., 106 F.3d at 20).
But in support of its argument for substitution, the NCUAB notes that
the Cortlandt Court also reached several rulings helpful to its cause: First, the
Cortlandt Court distinguished its case from others denying Rule 17 relief
because the Cortlandt plaintiff lacked underlying Article III standing. The
Circuit noted that where the named plaintiffs in prior cases “had standing
irrespective of any amendment under Rule 17 to pursue at least some of its
claims against the defendants,” the plaintiff in Cortlandt did not. Cortlandt,
790 F.3d at 422. In Cortlandt, “there was no valid lawsuit pending ... in which
to permit an amended complaint.” Id. Second, the Circuit left open the
“possibility” that a plaintiff could have avoided the “challenging procedural
pitfalls” that ultimately precluded Rule 17 relief if it had made “a request for

45

leave to obtain a valid assignment under some other rule of civil procedure.”
Id. at 424-25. Third, the Circuit emphasized that Rule 17 had been amended
specifically “to avoid forfeiture and injustice when an understandable mistake
has been made in selecting the party in whose name the action should be
brought,” as well as to “codif[y] the modern “judicial tendency to be lenient
when an honest mistake has been made in selecting the proper plaintiff.” Id. at
421 (quoting 6A Charles Alan Wright et al., FED. PRAC. & PROC. CIV. § 1555 (3d
ed. 2014)). And fourth, in a concurrence, Cortlandt’s author wrote separately
to emphasize the need to consider the practical value of substitution in aiding
expeditious litigation and avoiding unnecessary expense and delay. Id. at 42627 (Sack, J., concurring).
Post-Cortlandt case law further supports the NCUAB’s cause. In House
of Europe Funding I Ltd. v. Wells Fargo Bank, No. 13 Civ. 519 (RJS), 2015 WL
5190432, at *5 (S.D.N.Y. Sept. 4, 2015), for example, Judge Sullivan permitted
a plaintiff to amend its complaint to plead the fact of its authorization to
pursue the litigation despite the fact that doing so would entail the
modification of the complaint’s factual allegations. See generally id. He
identified his case as “a classic example of the circumstances that Rule 17(a)
was designed to address, namely ‘to avoid forfeiture in situations in which it is
unclear at the time the action is filed who had the right to sue and it is
subsequently determined that the right belonged to a party other than the
party that instituted the action.’” Id. (quoting Del Re v. Prudential Lines, Inc.,
669 F.2d 93, 96 (2d Cir. 1982)). And he distinguished it from Cortlandt on two

46

important bases: First, Judge Sullivan noted that the plaintiff in his case
possessed Article III standing notwithstanding any ratification. Id. at *6.
Second, he noted that while the proposed amendment in Cortlandt would have
“altered the factual allegations underlying [that plaintiff’s] basis for having
suffered an injury,” the amendment proposed by the plaintiff in his case simply
asserted the fact that plaintiff was authorized to bring the lawsuit, “a ‘merely
formal’ alteration, akin to substituting the name of the party.” Judge Sullivan
concluded that “[a]mending a complaint to incorporate the fact that the
ratifying party duly authorized a lawsuit cannot, on its own, be considered too
substantial of a change to fall within Rule 17(a).” Id. at *7.
Shortly after House of Europe was issued, Magistrate Judge Gorenstein
affirmed and extended its reasoning, permitting a Rule 17 ratification even
where underlying standing did not exist. See Digizip.com, Inc. v. Verizon Servs.
Corp., 139 F. Supp. 3d 670, 678-80 (S.D.N.Y. 2015).
In reaching these conclusions, both courts considered the three factors
announced in Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11
(2d Cir. 1997): (i) whether the complaint’s “only pertinent flaw was the identity
of the party pursuing [the relevant] claims,” such that “the proposed amended
complaint sought only to substitute one name for another; the factual and legal
allegations of the complaint would remain unaltered;” (ii) whether “there was
[any] indication of bad faith ... or an effort to deceive or prejudice the
defendants;” and (iii) whether “the proposed substitution ... threaten[ed] to
prejudice the defendants,” given the timely provision of “notice of the substance

47

of the allegations, the relevant parties, and their claims.” House of Europe,
2015 WL 5190432, at *3 (quoting Cortlandt St., 790 F.3d at 422 (identifying the
Advanced Magnetics factors)).
Judge Sullivan found the plaintiff’s
proposed amendment to the complaint — which would
merely incorporate the fact [of ratification] — [was] valid
for the same three reasons that warranted a Rule 17(a)
amendment in Advanced Magnetics, namely: [i] it [was]
a merely cosmetic change, [ii] it [was] not motivated by
bad faith, and [iii] it would not prejudice [the
defendant]. [The plaintiff’s] proposed amendment to the
complaint would leave the factual and legal allegations
underlying its claims unaltered, and since [the plaintiff
was] still pursing the same legal theory based on the
same alleged breaches ... that caused the same alleged
harm, the only change would be a technical amendment
providing that ... the real party in interest, ha[d]
authorized [plaintiff’s] prosecution of its claims[.]
House of Europe, 2015 WL 5190432, at *3.
Likewise, Judge Gorenstein found that “allowing plaintiff to cure the
standing defect through Rule 17 vindicate[d] the three policy interests
discussed in Advanced Magnetics and Cortlandt Street.” Digizip.com, 139 F.
Supp. 3d at 680. He reasoned that
as in Advanced Magnetics, “[t]he complaint’s only
pertinent flaw was the identity of the party pursuing
those claims.” That is, “the factual and legal allegations
of the complaint would remain unaltered” if the suit
continue[d]. Second, there [was] no indication of “bad
faith or ... an effort to deceive or prejudice the
defendants.” To the contrary, the standing defect ... was
apparently the result of an “honest mistake.” ... Finally,
the proposed change [did] not “threaten to prejudice the
defendants, who had timely notice of the substance of
the allegations, the relevant parties, and their claims.”

48

Id. (internal citations omitted).
So too here. As the Court indicated in the March 30 Opinion, “the only
pertinent flaw” in the Second Amended Complaint implicated by the Motion to
Supplement and Substitute was the identity of the party to pursue the
derivative claims. The “factual and legal allegations” substantiating these
claims will remain unaltered if the suit continues. In this regard, the Court
draws the same distinction as did Judge Sullivan in House of Europe:
Amending a pleading to allege new facts relating only to the authorization to
litigate is different from amending a pleading to allege new facts that go to the
constitutionality of a litigation or the merits of the underlying claims.
Moreover, the Court emphasizes that the Second Circuit in Advanced
Magnetics held only that “[a] Rule 17(a) substitution of plaintiffs should be
liberally allowed when the change is merely formal and in no way alters the
original complaint’s factual allegations as to the events or the participants.”
Advanced Magnetics, 106 F.3d at 20 (emphasis added). It did not hold that a
substitution could never be allowed unless the change is merely formal and in
no way alters the original complaint’s factual allegations. Second, the Court
finds that there is no indication that the NCUAB harbored an intention to
deceive Defendant, nor acted in bad faith. Rather, the NCUAB possessed a
genuine belief in its standing, which belief was reasonable in light of the law
then-existing in this District. And third, the Court does not believe that the
proposed substitution threatens to prejudice Defendant, who has had notice of
the substance of the allegations, the relevant actors, and their claims for

49

several years. Rather, “this case is a classic example of the circumstances that
Rule 17(a) was designed to address, namely, ‘to avoid forfeiture in situations in
which it is unclear at the time the action is filed who had the right to sue and it
is subsequently determined that the right belonged to a party other than the
party that instituted the action.’” House of Europe, 2015 WL 5190432, at *5
(quoting Del Re, 669 F.2d at 96).
iv.

The Proposed Substitution Is Not Improper for
Lack of Mistake or Justified Delay

Defendant’s final arguments are that substitution is improper because
the NCUAB did not name itself the Plaintiff by mistake, but rather did so as a
matter of litigation strategy, and because the NCUAB has offered no
justification for its delay in rectifying the standing issue of which it has long
been aware. (Def. 30(b)(6) Opp. 12-16). Again, the Court cannot agree.
The NCUAB failed to rectify the standing issue because it believed in
good faith that it was the real party in interest with regard to the derivative
claims. Defendant scoffs at the NCUAB’s proffered justification for this belief,
i.e., the unsettled status of this issue within this District, but the Court itself
endorsed the reality of this question in the March 30 Opinion. BlackRock DJ
Opinion, 2017 WL 1194683, at *25-29. (See also Pl. Supp. & Sub. Reply 7
(noting that at the time of the Second Amended Complaint’s filing, the only
court in this District to have considered the standing question has resolved it
in the NCUAB’s favor); id at 9). And when the NCUAB offered to undertake a
“fallback” motion with regard to its standing, it was this Court that did not

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permit it to do so. (Def. Supp. & Sub. Opp. 15; Pl. Supp. & Sub. Reply 7 (citing
Dkt. #310-1)).
Ultimately, the Court found in the March 30 Opinion that the NCUAB
was mistaken concerning the identity of the real party in interest with regard to
the derivative claims. At that juncture, the NCUAB promptly filed the Motion
to Supplement and Substitute. Contrary to Defendant’s contention that the
NCUAB “has offered no justification for its delay,” the NCUAB has clearly
indicated that the delay was the result of its genuine, honestly mistaken belief
that it was the correct, real party in interest, and the Court’s decision to resolve
the issue of the NCUAB’s standing in the context of the Consolidated Plaintiffs’
motion to dismiss the operative complaints in these cases. (Pl. Supp. & Sub.
Reply 6-8). The Court finds that the NCUAB sought substitution within a
reasonable time, given these circumstances.
b.

The NCUAB May Be Substituted as Direct Plaintiff for the
Re-conveyed Certificates from the R5 and R6 Trusts

In the March 30 Opinion, the Court held that with regard to the NCUAB’s
request to substitute itself as the direct claimant for itself as a derivative
claimant with regard to the claims brought on behalf of recently unwound NGN
trusts would only replace an incorrect party with the real party in interest.
BlackRock DJ Opinion, 2017 WL 1194683, at *30. The Court noted that it did
not expect that substitution would “alter[ ] the original complaint’s factual
allegations as to the events or the participants.” Id. (quoting House of Europe
Funding I Ltd., 2015 WL 5190432, at *2); see also Advanced Magnetics, 106
F.3d at 20. The Court now understands that “[t]wo NGN Trusts have unwound
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(before their scheduled security dates) since [the NCUAB] filed its initial
complaint, meaning that ‘the RMBS certificates [were] conveyed back’ to [the
NCUAB] along with ‘all rights to assert claims regarding th[ose] certificates.’”
(Pl. Supp. & Sub. Br. 5 (quoting BlackRock DJ Opinion, 2017 WL 1194683, at
*30)). Defendants do not dispute the applicability of the March 30 Opinion’s
reasoning to both of these trusts. (See Def. Supp. & Sub. Opp. 5 n.1
(recognizing this substitution is permitted pursuant to the March 30 Opinion)).
Therefore, for the reasons explained in the March 30 Opinion, the Court will
permit the NCUAB to substitute itself as direct Plaintiff for the re-conveyed
certificates from both the R5 and R6 trusts. 8
4.

The NCUAB May File a Supplemental Pleading

The NCUAB seeks to file a supplemental complaint to plead facts that
happened after its Second Amended Complaint was filed. See Fed. R. Civ.
P. 15(d). The supplemental complaint would include (i) facts pertaining to
BNYM’s appointment of and assignment of the NGN-related claims to the
Separate Trustee for their pursuit here (Pl. Supp. & Sub. Br. 8); and (ii) facts
pertaining to the re-conveyed trust certificates (id. at 15).
The Court begins with the latter category, as it presents a simpler
question. Defendant has not argued that the substitution of the NCUAB as
direct Plaintiff for the re-conveyed certificates from both the R5 and R6 trusts
would prejudice it. The NCUAB promptly sought to supplement its pleading

8

The Court declines at this stage to offer an advisory opinion on the merits of future
motions to substitute the NCUAB as the direct plaintiff for any trust certificates that
may be re-conveyed in the future. (Def. Supp. & Sub. Opp. 5 n.1).

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upon the unwinding of these Trusts, and allowing the NCUAB to supplement
its pleading will not delay this action in any way, because the NCUAB is
already a party to this action, and the claims brought on behalf of recently
unwound NGN trusts were brought already in the Second Amended Complaint.
See BlackRock DJ Opinion, 2017 WL 1194683, at *30 (considering these claims
in adjudicating motion to dismiss Second Amended Complaint). Additionally,
in light of the Court’s foregoing finding that the NCUAB is the real party in
interest with regard to these claims, the NCUAB clearly has good cause to
supplement its pleading to include these facts because doing so will permit the
NCUAB to replace an incorrect party with the real party in interest. Id.
Therefore, the Court will permit the NCUAB to file a supplemental complaint
alleging facts that happened after the filing of the Second Amended Complaint
relating to the re-conveyed certificates from both the R5 and R6 trusts.
The Court will also permit the NCUAB to allege in its supplemental
complaint the facts that happened after the filing of the Second Amended
Complaint relating to the appointment of the Separate Trustee. Defendant
argues that this should not be permitted for a number of reasons: Defendant
argues that the supplementation would be futile because the Separate Trustee
lacks standing to sue, and because his new claims are untimely. (Def. Supp. &
Sub. Opp. 17-18). Defendant reiterates its belief that the NCUAB unduly
delayed in addressing the issue of its standing. (Id. at 18). And Defendant
argues that it would be prejudiced by supplementation insofar as it will need to
file a new motion to dismiss and conduct new discovery. (Id. at 19-20).

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These claims do not succeed. With regard to the allegedly undue delay,
Defendant is correct that it first identified the relevant standing defect as early
as February 20, 2015. (Def. Supp. & Sub. Opp. 3 (citing Dkt. #24, at 3)).
Defendant is also correct that the NCUAB failed to remedy this defect, despite
Defendant’s notice thereof, in either its First or Second Amended Complaint.
Id. But the Court cannot take the next step with Defendant, and conclude that
the NCUAB’s failure to amend its pleading more expeditiously was unduly
delayed absent satisfactory explanation, or the result of dilatory tactics or bad
faith. As the Court explained above, it does not find that the NCUAB unduly
delayed in addressing the standing issue, in light of its genuine belief in the
face of unsettled law that it was the real party in interest, and in light of this
Court’s deferral of the issue to the motion-to-dismiss stage.
With regard to undue prejudice, the Court cannot accept that Defendant
will be unduly prejudiced by supplementation, if it is prejudiced at all. As the
NCUAB explains, fact discovery with regard to the claims against Defendant is
largely complete. (Pl. Supp. & Sub. Br. 13-14; Pl. Supp. & Sub. Reply 5). The
substitution of the Separate Trustee will require minimal additional discovery,
if any, because “[t]he only thing [it] would change is the name of the party
asserting the claim.” (Pl. Supp. & Sub. Br. 14; see also Pl. Supp. & Sub. Reply
5). The Court is also cognizant of and credits the NCUAB’s warning that a
denial of the Motion to Supplement and Substitute, would force “the Separate
Trustee ... to file the NGN Trust-related claims in a new action,” which would
likely be related to the Court, and which “may also require inefficient

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duplication of discovery efforts already accomplished here.” (Pl. Supp. & Sub.
Br. 14). 9 And though Defendant contends conversely that granting the Motion
will prompt it to file a second motion to dismiss (Def. Supp. & Sub. Opp. 20),
the Court cannot understand how this could be. The Court already has
addressed the grounds on which it imagines Defendant might have moved —
the real-party-in-interest status of the Separate Trustee and validity of his
appointment — in this Opinion, and suggested its belief that Defendant lacks
the standing to mount a challenge on this basis.
Finally, with regard to futility, the Court does not believe that
supplementing the Complaint to permit the inclusion of facts relating to the
appointment of the Separate Trustee would be futile. The Court has already
found, above, that the Separate Trustee may be substituted as the derivative
claimant because it is the real-party-in-interest. And Rule 17 dictates that
“[a]fter ... substitution, the action proceeds as if it had been originally
commenced by the real party in interest.” Fed. R. Civ. P. 17(a)(3). This means
that “for statute of limitations purposes, the claim[s] of the real party in
interest ... date[] back to the filing of the complaint.” Cortlandt St., 790 F.3d at
421. There is, therefore, no timeliness issue. The Separate Trustee’s claims
are timely, because it is the real party in interest, and its claims relate back.
Supplementing the facts supporting these claims does not render them

9

Thus, both sides proffer, if not threaten, that a Court determination contrary to their
position will result in additional litigation. The Court appreciates both sides’ concerns
for its docket, but must render its decisions without regard to the possibility of
additional work.

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untimely. Relatedly, permitting the Separate Trustee to supplement the
Second Amended Complaint with allegations relating to facts that occurred
after its filing will not render that Complaint insufficient to withstand a motion
to dismiss. See Kassner, 496 F.3d at 244. It will rather do just the opposite,
and bolster that pleading’s sufficiency with regard to the deficits the Court
identified in the March 30 Opinion.
Because the Court finds Defendant has not shown that supplementation
would result in undue delay, futility, or undue prejudice, or that the NCUAB’s
request for it is the result of bad faith or dilatory tactics, the NCUAB’s motion
must be freely granted. The Court grants the NCUAB leave to file a
supplemental pleading.
CONCLUSION
For the foregoing reasons, the Sampling Motion is DENIED, the 30(b)(6)
Motion is DENIED, and the Motion to Supplement and Substitute is GRANTED.
The Clerk of Court is directed to terminate the following motions: in Case
No. 14 Civ. 9371, the motions pending at Docket Entries #407 and 432; in
Case No. 14 Civ. 9764, the motion pending at Docket Entry #299; in Case
No. 14 Civ. 10067, the motions pending at Docket Entries #292 and 308; in
Case No. 14 Civ. 10102, the motion pending at Docket Entry #315; and in Case
No. 15 Civ. 10033, the motion pending at Docket Entry #238.
Before concluding, the Court pauses to express its dissatisfaction with
the blatant circumvention of its briefing-length restrictions. The Court was
troubled by this conduct with regard to the briefing submitted at the motion-to-

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dismiss stage, and is disappointed to see its utilization again here. The
parties — and Plaintiffs in particular — are hereby warned that future attempts
to evade the Court’s page limits, by relegating entire arguments to the
footnotes, or by using other “creative” formatting devices, will not be taken
kindly. Going forward, the parties would do well to seek the Court’s leave to
enlarge their page limits, rather than attempting to hide their unauthorized
enlargements in plain sight.
SO ORDERED.
Dated:

August 18, 2017
New York, New York

__________________________________
KATHERINE POLK FAILLA
United States District Judge

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