Royal Park Investments SA/NV v. Wells Fargo Bank, N.A.

Filing 473

OPINION AND ORDER ADOPTING REPORT AND RECOMMENDATIONS: for 339 Motion to Certify Class, filed by Royal Park Investments SA/NV, 442 Report and Recommendations,,,,, 453 Motion to Vacate, filed by Royal Park Investments SA/NV. Given the foregoing, Royal Park's objections to the R&R are OVERRULED and its motion for class certification is DENIED. The Clerk of Court is directed to terminate the motion appearing at docket entry 453. The parties are directed to submit a joint let ter within 30 days of the date of this Opinion advising the Court as to how they wish to proceed; whether the stay in this action should remain in effect; and, in light of this Opinion, whether Royal Park will continue to pursue its remaining objections to Judge Netburn's orders.(See Dkt. #441). (Signed by Judge Katherine Polk Failla on 4/17/2018) (js)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
ROYAL PARK INVESTMENTS SA/NV,
:
:
:
Plaintiff,
:
v.
:
:
WELLS FARGO BANK, N.A.,
:
:
:
Defendant.
:
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: April 17, 2018
______________

14 Civ. 9764 (KPF) (SN)
OPINION AND ORDER
ADOPTING REPORT AND
RECOMMENDATION

KATHERINE POLK FAILLA, District Judge:
Pending before the Court is the January 10, 2018 Report and
Recommendation issued by Magistrate Judge Sarah Netburn (the “R&R”)
recommending the denial of the motion for class certification brought by
Plaintiff Royal Park Investments SA/NV (“Royal Park”) in this action against
Defendant Wells Fargo Bank, N.A. (“Wells Fargo”). At the outset, the Court
observes that class certification in cases of this type, alleging breaches by the
trustee of a residential mortgage-backed security (“RMBS”) trust, is not an
issue of first impression in the Southern District of New York. Several other
courts in the District have addressed the issue, and though their reasoning has
evolved along with more recent Second Circuit decisions, none has found that a
class action would be an appropriate vehicle for prosecuting such a case. See
Royal Park Invs. SA/NV v. Deutsche Bank Nat’l Tr. Co., No. 14 Civ. 4394 (AJN),
2018 WL 1750595 (S.D.N.Y. Apr. 11, 2018); Royal Park Invs. SA/NV v. HSBC
Bank USA, N.A. (“HSBC”), No. 14 Civ. 8175 (LGS), 2018 WL 679495 (S.D.N.Y.

Feb. 1, 2018); Royal Park Invs. SA/NV v. Bank of N.Y. Mellon, No. 14 Civ. 6502
(GHW), 2017 WL 3835339 (S.D.N.Y. Aug. 30, 2017); Royal Park Invs. SA/NV v.
Deutsche Bank Nat’l Tr. Co. (“Deutsche Bank”), No. 14 Civ. 4394 (AJN), 2017
WL 1331288 (S.D.N.Y. Apr. 4, 2017). For the reasons that follow, the Court
finds no reason to chart a new course here, and it therefore adopts the R&R in
its entirety.
BACKGROUND 1
A.

Factual Background
Both this Court and Judge Netburn have previously offered lengthy

recitations of the facts underlying this action and several related actions. See
BlackRock Allocation Target Shares: Series S. Portfolio v. Wells Fargo Bank, Nat’l
Ass’n, 247 F. Supp. 3d 377, 383-88 (S.D.N.Y. 2017) (“BlackRock Series S”),
objections overruled sub nom. BlackRock Allocation Target Shares: Series S
Portfolio v. Wells Fargo Bank, Nat’l Ass’n, No. 14 Civ. 10067 (KPF) (SN), 2017
WL 3610511 (S.D.N.Y. Aug. 21, 2017); BlackRock Allocation Target Shares v.
Wells Fargo Bank, Nat’l Ass’n, No. 14 Civ. 9371 (KPF) (SN), 2017 WL 953550, at
*2-3 (S.D.N.Y. Mar. 10, 2017), order clarified sub nom. BlackRock Allocation
Target Shares: Series S Portfolio v. Wells Fargo Bank, Nat’l Ass’n, No. 14 Civ.
1

The facts discussed in this Opinion are drawn from the R&R (Dkt. #442), and from
Royal Park’s Amended Complaint (“Am. Compl.” (Dkt. #24)) and the exhibits attached
thereto. In addition, the Court refers to the parties’ briefing on Royal Park’s objections
to the R&R as follows: Royal Park’s Memorandum of Law in Support of Its Rule 72
Objections and Motion to Vacate the Magistrate Judge’s Opinion and Order and Report
and Recommendation as “Pl. Obj.” (Dkt. #455); Wells Fargo’s Opposition to the
Objections as “Def. Opp.” (Dkt. #458); and Royal Park’s Reply to Wells Fargo’s
Opposition as “Pl. Reply” (Dkt. #466).

2

10067 (KPF) (SN), 2017 WL 3610511 (S.D.N.Y. Aug. 21, 2017). This Opinion
therefore focuses on the facts necessary to resolve the instant objections to the
R&R.
1.

The RMBS Trusts

This case involves two RMBS trusts for which Wells Fargo serves as
trustee. (See Am. Compl. ¶ 1). 2 In May 2009, Royal Park acquired
collateralized debt obligations (“CDOs”) that included those two trusts, which
acquisition entitled Royal Park to beneficial interests in RMBS certificates
(“Certificates”). (R&R 2). Thousands of mortgage loans contained in the trusts
operate as collateral for the Certificates, and certificateholders like Royal Park
are entitled to the cash flow from the loans. (Id.). Institutional entities known
as “Depositors” transferred the loans to the trusts after acquiring the loans
from “Sponsors” or “Sellers,” which, as their names suggest, either originated
the loans or acquired the loans from originating lenders. (Id. at 2-3). Although
the CDOs were liquidated in February 2010, Royal Park asserts that it retains
2

The RMBS trusts at issue are titled “ABFC 2006-OPT1” and “SASC 2007-BC1.” (Am.
Compl. ¶ 2). An RMBS trust operates as follows:
To raise funds for new mortgages, a mortgage lender sells pools of
mortgages into trusts created to receive the stream of interest and
principal payments from the mortgage borrowers. The right to
receive trust income is parceled into certificates and sold to
investors, called certificateholders. The trustee hires a mortgage
servicer to administer the mortgages by enforcing the mortgage
terms and administering the payments. The terms of the
securitization trusts as well as the rights, duties, and obligations
of the trustee, seller, and servicer are set forth in a Pooling and
Servicing Agreement[.]
BlackRock Fin. Mgmt. Inc. v. Segregated Account of Ambac Assur. Corp., 673 F.3d 169,
173 (2d Cir. 2012).

3

the litigation rights that the initial purchasers of the CDOs had against Wells
Fargo. (Id. at 2).
2.

The Trustee’s Obligations

Royal Park grounds its claims in the agreements that govern the
responsibilities between and among Wells Fargo as trustee; the Depositors,
Sponsors, and Sellers; and other interested parties. In particular, Pooling and
Servicing Agreements (“PSAs”) contained Representations and Warranties
(“R&Ws”) requiring the Sponsor, Seller, or other entity that originated or
transferred one of the underlying loans to the trusts to “warrant the credit
quality and characteristics” of those loans — including, for example, “the
borrower’s employment status and the property’s appraisal value.” (R&R 3).
The PSAs required the warranting party “to cure, substitute[,] and/or
repurchase any loans that fail[ed] to conform to the R&Ws.” (Id.).
Pursuant to the PSAs, Wells Fargo was responsible for assuring
compliance with the R&Ws. Specifically, and as relevant to Royal Park’s
claims, Wells Fargo had the duties (i) to “promptly notify the applicable
Originator or the Seller” upon discovering “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” that is applicable to
any “Mortgage Loan which materially adversely affects the value of such
Mortgage Loan”; and (ii) if “a Responsible Officer ha[d] actual knowledge” of a

4

“Servicer Event of Termination,” 3 Wells Fargo was to “exercise such of the
rights and powers vested in it by [the PSA]” with “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.” (R&R 3).
B.

Procedural Background
1.

Royal Park’s Claims Against Wells Fargo

Royal Park alleges that Wells Fargo failed to satisfy the PSAs’
requirements — thereby breaching both the PSAs and Wells Fargo’s commonlaw duty of trust to avoid conflicts of interest with trust beneficiaries —
because it discovered R&W breaches and Servicer Events of Termination in the
underlying trusts but “took ‘virtually no action to enforce Seller obligations to
repurchase defective loans and Servicer obligations to cure defaults and
reimburse the Trusts for damages.’” BlackRock Series S, 247 F. Supp. 3d at
387 (citation omitted). At present, only Royal Park’s breach of contract and
breach of trust claims remain, the Court having previously dismissed claims
under the Trust Indenture Act and the Streit Act. See id. at 393-401. (See also
Am. Compl. ¶¶ 173-200). In pursuit of these remaining claims, Royal Park
seeks to certify the following class:
All persons and entities who held Certificates in the
Covered Trusts at any time between the date of issuance
3

A “Servicer Event of Termination” included failures on the part of the loan servicer,
such as a “failure by the Servicer to deposit in the Collection Account or remit to the
Trustee for deposit in the Distribution Account any payment required to be made under
the terms of” the PSA. (Am. Compl., Ex. A (§ 7.01(a)(i)(A) of the PSA for the ABFC 2006OPT1 Trust)).

5

to no later than 60 days after notice of class certification
and opportunity to opt out is issued and were damaged
as a result of Wells Fargo Bank, N.A.’s conduct alleged
in the Complaint. Excluded from the Class are
defendant, the loan originators, the Warrantors, the
Master Servicers and the Servicers to the Covered
Trusts, and their officers and directors, their legal
representatives, successors or assigns, and any entity
in which they have or had a controlling interest.
(Pl. Obj. 3).
2.

The R&R

On January 10, 2018, Magistrate Judge Netburn issued the R&R on
Royal Park’s class certification motion, recommending that the Court deny
certification. (Dkt. #442). Judge Netburn found that Royal Park had
established that membership in the putative class was ascertainable and that
the class satisfied Federal Rule of Civil Procedure 23(a)’s requirements of
numerosity, commonality, typicality, and adequate representation.
(R&R 13-22). The certification motion failed, in Judge Netburn’s view, because
Royal Park did not satisfy Rule 23(b)(3)’s requirements that common questions
predominate over individual issues and that a class action be superior to other
methods of adjudication. (Id. at 22-35). Judge Netburn also declined to
recommend certifying a class under Rule 23(c)(4) for the limited purpose of
determining liability, finding that certifying a limited class would implicate the
same problems as certifying a class to adjudicate the entirety of Royal Park’s
claims. (Id. at 35-36). 4

4

Also accompanying the R&R was an Opinion and Order in which Judge Netburn denied

6

On February 7, 2018, Royal Park filed objections to the R&R, thereby
challenging Judge Netburn’s recommendation that the putative class be denied
for failure to satisfy the requirements of Rule 23(b)(3). (Dkt. #453, 455-56). On
March 8, 2018, Wells Fargo opposed Royal Park’s objections (Dkt. #464-65),
and on March 21, 2018, Royal Park replied to Wells Fargo’s opposition (Dkt.
#466).
Along with its objections, Royal Park submitted to the Court materials
that it had not submitted to Judge Netburn. (See Declaration of Christopher
Wood dated February 7, 2018 (“Wood Decl.” (Dkt. #456)), Ex. A-E, H-J). By
letter dated March 23, 2018, Royal Park requested an evidentiary hearing on
the matter. (Dkt. #467). The Court denied the request, noting, in relevant
part, that the materials in issue had not been presented to Judge Netburn and
that no request had been made to her for an evidentiary hearing. (Dkt. #470
(citing Frasier v. McNeil, No. 13 Civ. 8548 (PAE) (JCF), 2015 WL 1000047, at *2
(S.D.N.Y. Mar. 5, 2015); Grant v. Bradt, No. 10 Civ. 394 (RJS), 2012 WL
3764548, at *4 (S.D.N.Y. Aug. 30, 2012)). 5

Wells Fargo’s motion to exclude Royal Park’s damages expert, who submitted a report in
support of class certification. (R&R 4-13). Wells Fargo did not file any objections to the
R&R, nor did it appeal from the denial of its motion to exclude.
5

It remains the Court’s view that considering new evidence or new arguments in
reviewing objections to a magistrate judge’s ruling is “disfavored absent a ‘most
compelling reason’ for the failure to present such evidence or arguments in the first
instance.” In re Consol. RNC Cases, No. 127, 2009 WL 130178, at *10 (S.D.N.Y. Jan. 8,
2009) (quoting Hous. Works, Inc. v. Turner, 362 F. Supp. 2d 434, 438 (S.D.N.Y. 2005)).
No such proffer was made in this case. That said, even were the Court to consider this
additional information — in particular, the materials derived from third-party document
productions — the deficiencies identified by Judge Netburn would remain.

7

DISCUSSION
A.

Review of a Magistrate Judge’s Report and Recommendation
When deciding whether to adopt a report and recommendation, the

district court “may accept, reject, or modify, in whole or in part, the findings or
recommendations made by the magistrate judge.” 28 U.S.C. § 636(b)(1)(C); see
also Fed. R. Civ. P. 72(b)(3). The Court conducts a de novo review of those
portions of a report and recommendation to which a party submits a timely
objection. See generally United States v. Romano, 794 F.3d 317, 340 (2d Cir.
2015).
“To accept those portions of the report to which no timely objection has
been made, ‘a district court need only satisfy itself that there is no clear error
on the face of the record.’” King v. Greiner, No. 02 Civ. 5810 (DLC), 2009 WL
2001439, at *4 (S.D.N.Y. July 8, 2009) (quoting Wilds v. United Parcel Serv.,
Inc., 262 F. Supp. 2d 163, 169 (S.D.N.Y. 2003)), aff’d, 453 F. App’x 88 (2d Cir.
2011) (summary order); accord Galeana v. Lemongrass on Broadway Corp., 120
F. Supp. 3d 306, 310 (S.D.N.Y. 2014). Indeed, a party’s failure to object timely
to a report and recommendation, after receiving clear notice of the
consequences of such a failure, operates as a waiver both of the party’s right to
object to the report and recommendation and of the right to challenge the
report and recommendation on appeal. See Frank v. Johnson, 968 F.2d 298,
300 (2d Cir. 1992) (“We have adopted the rule that failure to object timely to a
report waives any further judicial review of the report.”).
8

B.

The Court Adopts the R&R’s Recommendation to Deny Certification
1.

Royal Park Fails to Satisfy Rule 23(b)(3)

Before certifying a putative class, a district court must decide that it
satisfies not only Rule 23(a)’s prerequisites of numerosity, commonality,
typicality, and adequacy of representation, but also one of the three criteria of
Rule 23(b). Marisol A. v. Giuliani, 126 F.3d 372, 375-76 (2d Cir. 1997). Royal
Park seeks certification under Rule 23(b)(3), which allows class certification
where [i] “questions of law or fact common to class members predominate over
any questions affecting only individual members,” and [ii] “a class action is
superior to other available methods for fairly and efficiently adjudicating the
controversy.” Fed. R. Civ. P. 23(b)(3).
The Supreme Court has described Rule 23(b)(3) “as an ‘adventuresome
innovation,’ … designed for situations ‘in which class-action treatment is not as
clearly called for.’” Comcast Corp. v. Behrend, 569 U.S. 27, 34 (2013) (quoting
Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 362 (2011)). Class certification
pursuant to Rule 23(b)(3) is justified where it “would achieve economies of time,
effort, and expense, and promote … uniformity of decision as to persons
similarly situated, without sacrificing procedural fairness or bringing about
other undesirable results.” Amchem Prod., Inc. v. Windsor, 521 U.S. 591, 615
(1997) (ellipsis in original). Conversely, a court should deny certification
“[w]here individualized questions permeate the litigation,” in which case “those
‘fatal dissimilarit[ies]’ among putative class members ‘make use of the class9

action device inefficient or unfair.’” In re Petrobras Sec., 862 F.3d 250, 270 (2d
Cir. 2017) (second alteration in original) (quoting Amgen Inc. v. Conn. Ret. Plans
& Tr. Funds, 568 U.S. 455, 470 (2013)).
a.

Individual Issues Predominate Over Common Issues

Rule 23(b)(3)’s predominance requirement “tests whether proposed
classes are sufficiently cohesive to warrant adjudication by representation.”
Windsor, 521 U.S. at 623 (citing 7A Charles Alan Wright, Arthur R. Miller, &
Mary Kay Kane, FEDERAL PRACTICE AND PROCEDURE 518-19). A putative class
satisfies this requirement if (i) “resolution of any material ‘legal or factual
questions … can be achieved through generalized proof,’” and (ii) “these
[common] issues are more substantial than the issues subject only to
individualized proof.” Petrobras, 862 F.3d at 270 (alterations in original)
(quoting Mazzei v. The Money Store, 829 F.3d 260, 270 (2d Cir. 2016)). This
analysis requires district courts to weigh the prevalence of individual issues
(i.e., those demanding evidence that varies among class members) against
common issues (i.e., those “susceptible to generalized class-wide proof”). Id.
(quoting Tyson Foods, Inc. v. Bouaphakeo, — U.S. —, 136 S. Ct. 1036, 1045
(2016)); see also In re LIBOR-Based Fin. Instruments Antitrust Litig., No. 11 Civ.
5450 (NRB), 2018 WL 1229761, at *5 (S.D.N.Y. Feb. 28, 2018) (“Ultimately, we
ask ‘whether issues susceptible to generalized proof outweigh individual
issues,’ or put differently, whether ‘common issues are more substantial than
individual ones.’” (internal citations omitted)).
10

That said, “[i]ndividual questions need not be absent” in order for a court
to certify a class under Rule 23(b)(3); the “rule requires only that those
questions not predominate over the common questions affecting the class as a
whole.” Sykes v. Mel S. Harris & Assocs. LLC, 780 F.3d 70, 81 (2d Cir. 2015)
(quoting Messner v. Northshore Univ. HealthSystem, 669 F.3d 802, 815 (7th Cir.
2012)). Although a court may certify a class even where issues such as
damages or individual defenses might not be amenable to generalized proof,
“such individual issues are ‘factor[s] that [a court] must consider in deciding
whether issues susceptible to generalized proof outweigh individual issues[.]”
Johnson v. Nextel Commc’ns Inc., 780 F.3d 128, 138 (2d Cir. 2015) (first
alteration in original) (quoting McLaughlin v. Am. Tobacco Co., 522 F.3d 215,
231 (2d Cir. 2008), abrogated on other grounds by Bridge v. Phx. Bond & Indem.
Co., 553 U.S. 639 (2008)).
The R&R identifies three individual issues that would predominate over
any common issues in the litigation: (i) whether each putative class member
has standing to bring claims against Wells Fargo for common breaches of the
trusts’ governing agreements; (ii) whether applicable statutes of limitations
render the putative class members’ claims untimely; and (iii) whether damages
would be calculable on a class-wide basis. (See R&R 22-31). These issues are
discussed below, after first discussing the single common issue present in this
case.

11

i.

The Common Issue of Breach

As Judge Netburn recognized in her assessment of Rule 23(a)’s
commonality requirement, “questions of whether Wells Fargo breached certain
provisions of the underlying agreements are common ones material to the
resolution of this litigation.” (R&R 19). To prevail, Royal Park would have to
prove breach “on a ‘loan-by-loan and trust-by-trust basis.’” Deutsche Bank,
2016 WL 439020, at *6 (quoting Ret. Bd. of the Policemen’s Annuity & Benefit
Fund of the City of Chi. v. Bank of N.Y. Mellon, 775 F.3d 154, 162 (2d Cir.
2014)). And Wells Fargo may well be correct that “[t]he trusts have materially
different waterfalls and contract terms, imposing different duties and
prioritizing payments to different holders in different circumstances over time.”
(Def. Opp. 18). These differences — though no doubt relevant to the
predominance inquiry, as discussed below — would impact when a given claim
accrued and the amount of damages to which an individual plaintiff would be
entitled. They would not, however, impact a determination of whether Wells
Fargo breached the relevant agreements or, for that matter, whether Wells
Fargo breached its common-law duty of trust. Cf. Bank of N.Y. Mellon, 775
F.3d at 162 (denying class standing for plaintiffs bringing breach of contract
and breach of fiduciary duty claims on behalf of investors in trusts in which
plaintiffs did not invest).
But even if Wells Fargo committed such breaches, its liability to investors
would depend on a variety of factors that would be idiosyncratic to each
12

putative class member. These factors include the identity of the beneficial
owners of trust certificates, the timing of an investor’s acquisition of a trust
certificate, jurisdictional differences in the body of law applicable to an
investor’s claim, and the amount of damages attributable to such claim. As
detailed in the remainder of this section, although these issues individually
might not predominate over any issues common to the putative class members,
taken together, they overwhelm any common issues. See Johnson, 780 F.3d at
138.
ii.

The Individual Issue of Standing

Under Article III of the United States Constitution, a federal court may
only entertain suits in which the plaintiff has standing, i.e., (i) an “injury in
fact” that is “concrete and particularized,” (ii) “a causal connection between the
injury and the conduct complained of,” and (iii) a likelihood “that the injury will
be redressed by a favorable decision.” Lujan v. Defenders of Wildlife, 504 U.S.
555, 560-61 (1992) (internal citations and quotation marks omitted). In the
class action context, each class member need not “submit evidence of personal
standing,” but a court may not certify a class “that contains members lacking
Article III standing.” Denney v. Deutsche Bank AG, 443 F.3d 253, 263-64 (2d
Cir. 2006). “Put differently, ‘Article III’s jurisdictional requirements [apply] to
each member of a class.” Calvo v. City of New York, No. 14 Civ. 7246 (VEC),
2017 WL 4231431, at *3 (S.D.N.Y. Sept. 21, 2017) (alteration in original)
(quoting In re Literary Works in Elec. Databases Copyright Litig., 509 F.3d 116,
13

126 (2d Cir. 2007)). A “class must therefore be defined in such a way that
anyone within it would have standing.” Denney, 443 F.3d at 264.
The difficulty in determining standing for members of the class here is a
consequence of the chain of beneficial ownership of the trust certificates.
“[T]he [c]ertificates do not have unique identifiers, they are actively traded on
the secondary market without a central clearinghouse to record trades, and
many [c]ertificate holders are not the actual beneficiaries.” (R&R 24). As the
R&R notes, in most states, “assignors must manifest an intent to transfer
litigation rights,” while New York law applies a minority rule under which
litigation rights automatically accompany the sale of a certificate. (Id. at 28
(citing Deutsche Bank, 2017 WL 1331288, at *7; Racepoint Partners, LLC v. JP
Morgan Chase Bank, No. 06 Civ. 2500 (MGC), 2006 WL 3044416, at *4
(S.D.N.Y. Oct. 26, 2006)). See also HSBC, 2018 WL 679495, at *3 (“The fact
that Plaintiffs currently hold the certificates does not establish their standing
as to losses incurred by previous certificateholders.”).
In light of these ambiguities in ownership and variations in applicable
law, multiple courts in this District have acknowledged the tortuous standing
analysis for a putative class member in an RMBS trust action:
First, the Court would have to apply New York’s factintensive “center of gravity” choice-of-law framework to
determine which jurisdiction’s law governs a particular
assignment. Under this approach, courts consider five
factors in determining which jurisdiction has the “most
significant relationship” to a contract dispute: [i] the
place of contracting, [ii] the place of negotiation, [iii] the
14

place of performance, [iv] the location of the subject
matter and [v] the domicile or place of business of the
contracting parties. For each … class member[], this
analysis would be necessary for each transfer in the
chain from the original certificateholder to the potential
class member. Second, the Court would have to apply
the law relevant to each transaction to determine
whether claims were assigned with the transfer of
certificates or retained by the seller. A certificateholder
has standing to sue only if every prior transaction in the
chain included an assignment of the right to sue along
with the underlying certificate.
HSBC, 2018 WL 679495, at *4; see also Deutsche Bank, 2017 WL 1331288, at
*7 (“[I]dentifying class members with contract claims in the face of active
aftermarket trading across multiple domestic and international jurisdictions is
likely to require a two-part inquiry.”). In its objection, Royal Park takes issue
with the second step in this analysis — determining whether litigation rights
accompanied the transfer of a certificate — by arguing that the record contains
no evidence that such may be the case for any of the investors here. (See Pl.
Obj. 13). But even if it turns out that all of the investors within Royal Park’s
proposed class have retained the litigation rights linked to their certificates
under the law of the relevant jurisdiction, that determination would still require
an individualized inquiry for each investor.
Royal Park separately argues that this analytical hurdle need not
foreclose certification, as “courts routinely reject the notion that the standing of
absent class members is sufficient to defeat predominance[.]” (Pl. Obj. 9). But
the portions of the cases on which Royal Park relies for this proposition only
highlight the importance of determining certificate ownership, individually, for
15

the purpose of standing; the cited excerpts deal with difficulties in determining
whether an individual class member may prevail on the merits or be entitled to
damages, and do not address Article III’s jurisdictional requirements. See
Briseno v. ConAgra Foods, Inc., 844 F.3d 1121, 1131 (9th Cir. 2017) (“Rule 23
specifically contemplates the need for … individualized claim determinations
after a finding of liability.” (emphasis added)); Freeland v. Iridium World
Commc’ns, 233 F.R.D. 40, 46 (D.D.C. 2006) (“[A]ny difficulty by individual class
members in tracing their particular aftermarket-purchased shares to the
Registration Statement is a secondary issue to be resolved after the
predominant issue of [the defendant’s] liability has been decided.” (emphasis
added)). Although the Court need not necessarily address standing before
class certification, see Winfield v. Citibank, N.A., 842 F. Supp. 2d 560, 574
(S.D.N.Y. 2012), such analysis here will be ridden with complex, individualized
determinations.
As the R&R points out, identifying certificateholders is unlikely without
the record of each transfer, as the certificates are only identifiable by a CUSIP
number that is common to all other holdings in a given tranche within a trust.
(R&R 25). Royal Park contends that courts commonly certify classes in
securities fraud cases involving a single CUSIP number. (Pl. Obj. 10). But for
the purpose of determining standing, courts have expressly distinguished
securities fraud actions from RMBS trust actions, finding that claims in the
latter category require individualized inquiries not implicated in the former
16

category. See Bank of N.Y. Mellon, 775 F.3d at 161-63 (affirming dismissal
based on lack of class standing where plaintiffs brought, inter alia, breach of
contract and fiduciary duty claims related to RMBS trusts in which they did
not invest); Deutsche Bank, 2017 WL 1331288, at *6 (contrasting
“straightforward” analysis of standing for Securities Act claims with more
involved analysis for “investors who assigned or acquired [trust certificates] via
the secondary market”). The law regarding class certification in the securities
fraud context thus does not graft cleanly onto the claims at issue.
Royal Park also submits that it can identify beneficial owners of the trust
certificates through records that Royal Park obtained by subpoenaing the
Depository Trust Company (“DTC”), which “legally own[s]” the certificates “in
‘Book-Entry’ form.” (Dkt. #448 at 22 (Memorandum of Law in Support of Class
Certification); see Pl. Obj. 12)). Although the R&R notes that these records
“only list participant institutions, not the actual beneficial owner,” (R&R 26
(internal quotation marks and citation omitted)), Royal Park contends that this
“ignores” that Royal Park subpoenaed such participants, which have “provided
trading records identifying many of the beneficial owners of the certificates,”
(Pl. Obj. 12 (emphasis added)). Royal Park has not shown, however, that it will
be able to determine all of the beneficial owners — nor, more importantly, that
these documents reveal the chain of ownership necessary to determine whether
a given certificateholder owns the litigation rights associated with their
certificates. And the further discovery required to ascertain such information
17

only underscores the individualized inquiries required to determine which
investors have standing to bring the claims alleged. Unsurprisingly, Royal
Park’s own expert conceded that, based on the documentation currently
available to Royal Park, constructing a coherent chain of ownership or list of
beneficial owners may be impossible. (R&R 27 (quoting Dkt. #360-17, at
¶ 54)).
iii.

The Individual Issue of Limitations Periods

Because statutes of limitations differ among jurisdictions, the R&R found
that Wells Fargo’s “affirmative statute of limitations defense will vary from class
member to class member, requiring the Court to make individualized
determinations.” (R&R 29). Under New York’s “borrowing statute,” N.Y.
C.P.L.R. 202, “[w]hen a nonresident sues on a cause of action accruing outside
New York,” the claim must “be timely under the limitations period of both New
York and the jurisdiction where the cause of action accrued.” Luv N’ Care, Ltd.
v. Goldberg Cohen, LLP, 703 F. App’x 26, 28 (2d Cir. 2017) (summary order)
(quoting Global Fin. Corp. v. Triarc Corp., 93 N.Y.2d 525, 528 (1999)). Thus,
whether each investor in the proposed class has a timely claim turns on where
the claim accrued, when it accrued, and the applicable statute of limitations in
the relevant jurisdiction. (See R&R 30). Royal Park’s expert opined that the
investors in the trusts at issue are from at least six states aside from New York,
as well as foreign jurisdictions. (Id.).

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Royal Park argues that “Wells Fargo has never established that it has a
meritorious statute of limitations defense against Royal Park or any class
member, rendering any purported defense speculative.” (Pl. Obj. 15). Yet that
merely begs the question, as determining whether Wells Fargo did have such a
defense would require the very analysis outlined above. And although Royal
Park is correct that individual inquiries involved in affirmative defenses,
standing alone, might not predominate over common issues, “such individual
issues are ‘factor[s] that [a court] must consider in deciding whether issues
susceptible to generalized proof outweigh individual issues[.]” Johnson, 780
F.3d at 138 (first alteration in original) (emphasis added). Royal Park’s
objection to this point falls flat.
iv.

The Individual Issue of Damages

An additional factor Judge Netburn considered was the analysis
necessary to distribute any damages among investors. On this point, the R&R
found that because “[i]nvestors bought and sold different tranches of the
[c]ertificates at different times,” the damages to which each investor would be
entitled would vary. (R&R 30-31). Royal Park takes issue with this, arguing
that it “conclusively established that damages are calculable on a class-wide
basis.” (Pl. Obj. 16). The expert report to which Royal Park cites to support
this proposition provides that “the primary step to computing damages is
assessing the impact of [Wells Fargo]’s alleged actions and inactions on the
mortgage loans underlying each [trust].” (Dkt. #360-6, ¶ 50). Yet the report
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admits that “to apportion damages among” the investors, “it is necessary to
understand each [trust’s] deal structure to determine how the values of the
different” — i.e., individual — “[c]ertificates were affected by losses to the
common mortgage loan collateral.” (Id. at ¶ 54). Thus, although aggregate
damages may be calculable on a class-wide basis, dividing those damages
among investors would require the sort of individual inquiries that the Court
has discretion to take into account within the predominance analysis. See,
e.g., Jacob v. Duane Reade, Inc., 602 F. App’x 3, 7 (2d Cir. 2015) (summary
order) (affirming class decertification as to damages, but not liability, where
individualized nature of damages inquiry would defeat predominance);
Breitman v. Xerox Educ. Servs., LLC, No. 12 Civ. 6583 (PAC), 2014 WL
5364103, at *5 (S.D.N.Y. Oct. 22, 2014) (denying certification under
Rule 23(b)(3) where, inter alia, class members’ damages “would necessitate
individualized inquiries”).
Royal Park argues that “[i]t is black-letter law that differences in class
member damages never bar class certification.” (Pl. Obj. 16 (emphasis in
original)). The case on which Royal Park relies for this proposition, Roach v.
T.L. Cannon Crop., 778 F.3d 401 (2d Cir. 2015), however, did not paint with so
broad a brush: Although Roach held that “individualized damages
determinations alone cannot preclude certification under Rule 23(b)(3),” it
recognized “that damages questions should be considered at the certification
stage when weighing predominance issues[.]” Id. at 408-09 (emphasis added).
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Thus, as with affirmative defenses, individualized damages inquiries remain a
factor that a court may consider in undertaking the predominance analysis.
See id. at 405; see also Hart v. Rick’s Cabaret Int’l, Inc., 60 F. Supp. 3d 447,
472 (S.D.N.Y. 2014) (A court may certify a class “under Rule 23(b)(3) where
liability could be determined classwide and either [i] damages were capable of
class-wide determination, or [ii] individual damage calculations are simple and
mechanical[.]”). And here, the individualized inquiries necessary to distribute
damages among investors, along with the individualized questions discussed
above, would dwarf the only common question identified in this case.
b.

The Proposed Class Action Would Not Be Superior to
Other Available Methods for Adjudicating the
Controversy

In addition to predominance, Rule 23(b)(3) requires a movant to show
“that a class action is superior to other available methods for fairly and
efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3). Rule 23(b)(3)
provides a “‘nonexhaustive’ and nonexclusive” list of factors that a court may
consider when deciding whether to certify a class. In re LIBOR-Based Fin.
Instruments Antitrust Litig., 2018 WL 1229761, at *6. Those factors consist of
the following: “the class members’ interests in individually controlling the
prosecution or defense of separate actions”; “the extent and nature of any
litigation concerning the controversy already begun by or against class
members”; “the desirability or undesirability of concentrating the litigation of
the claims in the particular forum”; and “the likely difficulties in managing a
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class action.” Fed. R. Civ. P. 23(b)(3)(A)-(D). Structurally, these factors “seem
to apply both to the predominance and superiority inquiry,” but “they more
clearly implicate the superiority inquiry.” Sykes, 780 F.3d at 82. The factors
encourage courts to “consider the interests of individual members of the class
in controlling their own litigations and carrying them on as they see fit.”
Windsor, 521 U.S. at 616 (quoting Fed. R. Civ. P. 23(b)(3) advisory committee’s
note to 1966 amendment).
The R&R found that a class action would not be superior for two
principal reasons: (i) given “the individualized nature of claims in this case[,] …
management of the litigation would be difficult, if not near impossible,” and
(ii) the proposed class members, as investors in RMBS trusts, are generally
“highly sophisticated, knowledgeable financial institutions or wealthy private
investors” who “would have a strong interest in individually controlling the
prosecution of their own actions.” (R&R 33-34 (citation omitted)). These
considerations do indeed weigh against certification, see Fed. R. Civ.
P. 23(b)(3)(A), (D), and the Court therefore adopts the R&R’s recommendation
on this issue, despite several objections raised by Royal Park that are
discussed below.
First, on the issue of manageability, Royal Park’s objection is
substantially derivative of its arguments on predominance. (See Pl. Obj. 1920). Indeed, Royal Park all but concedes that if the Court were not to find
predominance, it would not find that the case would be manageable as a class
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action, by stating, “[a]s predominance goes, so goes manageability.” (Id. at 19).
And Royal Park is correct — given the individualized inquiries described above
that certification would necessitate, the Court and the litigants would face
great hurdles in managing this litigation and bringing it to resolution in any
reasonable period of time.
Second, as to the notion that the class would consist of sophisticated
plaintiffs with an interest in pursuing their own claims, Royal Park argues that
DTC trading records “show dozens of transactions in the two [trusts] for less
than $1 million each,” rendering “uneconomical” individual suits by “investors
with such small investments[.]” (Pl. Obj. 21). To be sure, the Advisory
Committee designed Rule 23(b)(3) to allow claims to proceed to court where
individual plaintiffs might otherwise lack the economic incentive to file their
own complaints. See Windsor, 521 U.S. at 617. But that is generally the case
where individual plaintiffs stand to gain only meager payouts, a far cry from
the financial position of the prospective class members here. See, e.g., Kottler
v. Deutsche Bank AG, No. 08 Civ. 7773 (PAC), 2010 WL 1221809, at *5
(S.D.N.Y. Mar. 29, 2010) (denying class certification where “[c]lass members
[were] high net-worth investors with large claims, capable of litigating
individually”); cf. In re Holocaust Victim Assets Litig., 302 F. Supp. 2d 89, 96
(E.D.N.Y. 2004) (noting as “not uncommon” awards in class actions “where
members of the class get pennies or coupons, the cumulative total of which is

23

used to justify awarding millions of dollars in legal fees”), aff’d, 424 F.3d 132
(2d Cir. 2005).
In short, for many of the same reasons that individual issues would
predominate over common issues, a class action would not be a superior
method of resolving the claims at issue here.
2.

The Court Will Not Certify a Liability-Only Class

Federal Rule of Civil Procedure 23(c)(4) provides that “[w]hen appropriate,
an action may be brought or maintained as a class action with respect to
particular issues.” In the alternative to certifying a class for all purposes, Royal
Park seeks certification of a class for the limited purpose of deciding Wells
Fargo’s liability, as Royal Park contends that the “R&R correctly concluded”
that the issue is “common to the class.” (Pl. Obj. 23). Yet that is not what the
Judge Netburn concluded and the Court has not adopted such a view;
although the issue of Wells Fargo’s breach of the R&Ws or of its duty of trust
may be subject to generalized proof on a class-wide basis, such proof alone
would not establish Wells Fargo’s liability.
Indeed, among other questions bearing on Wells Fargo’s ultimate
liability, the preliminary issue of standing would remain, as would Wells
Fargo’s affirmative defenses; as discussed above, both of these questions
require individualized inquiries. And although “a court may properly employ
[Rule 23(c)(4)] to separate the issue of liability from damages,” this is only so
“when it is the ‘only’ way that a litigation retains its class character, i.e., when
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common questions predominate only as to the ‘particular issues’ of which the
provision speaks.” In re Nassau Cty. Strip Search Cases, 461 F.3d 219, 226 (2d
Cir. 2006). For the reasons discussed above, individualized issues would
continue to permeate the issue of liability, and the Court therefore declines to
certify a class to determine that limited issue.
CONCLUSION
Given the foregoing, Royal Park’s objections to the R&R are OVERRULED
and its motion for class certification is DENIED. The Clerk of Court is directed
to terminate the motion appearing at docket entry 453. The parties are
directed to submit a joint letter within 30 days of the date of this Opinion
advising the Court as to how they wish to proceed; whether the stay in this
action should remain in effect; and, in light of this Opinion, whether Royal Park
will continue to pursue its remaining objections to Judge Netburn’s orders.
(See Dkt. #441).
SO ORDERED.
Dated:

April 17, 2018
New York, New York

__________________________________

KATHERINE POLK FAILLA
United States District Judge

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