Phoenix Light SF Limited et al v. Deutsche Bank National Trust Company
Filing
435
OPINION AND ORDER re: (161 in 1:15-cv-10031-JGK-DCF) MOTION for Summary Judgment filed by Deutsche Bank National Trust Company, Deutsche Bank Trust Company Americas, (208 in 1:15-cv-10031-JGK-DCF) LETTER MOTION for Oral Argument a ddressed to Judge John G. Koeltl from Jay S. Handlin dated March 8, 2019 filed by Commerzbank AG, (158 in 1:15-cv-10031-JGK-DCF) MOTION for Summary Judgment filed by Commerzbank AG, (320 in 1:14-cv-10103-JGK-DCF) LETTER MOTION for Oral A rgument addressed to Judge John G. Koeltl from Jay S. Handlin dated March 8, 2019 filed by Silver Elms CDO plc, Phoenix Light SF Limited, Blue Heron Funding V Ltd., Kleros Preferred Funding V Plc, Blue Heron Funding IX Ltd., Silver Elms CDO II Limited, Blue Heron Funding VI Ltd., C-Bass CBO XVII Ltd., C-Bass CBO XIV Ltd., Blue Heron Funding VII Ltd., (420 in 1:14-cv-10103-JGK-DCF) SUPPLEMENTAL MOTION for Summary Judgment filed by Deutsche Bank National Trust Company, Deutsche Bank Trust Company Americas, (269 in 1:14-cv-10103-JGK-DCF) MOTION for Summary Judgment filed by Silver Elms CDO plc, Phoenix Light SF Limited, Blue Heron Funding V Ltd., Silver Elms CDO II Limited, Blue Heron Funding IX L td., Kleros Preferred Funding V Plc, Blue Heron Funding VI Ltd., C-Bass CBO XVII Ltd., C-Bass CBO XIV Ltd., Blue Heron Funding VII Ltd., (272 in 1:14-cv-10103-JGK-DCF) MOTION for Summary Judgment filed by Deutsche Bank National Trust Company, Deutsche Bank Trust Company Americas, (214 in 1:15-cv-10031-JGK-DCF) LETTER MOTION to Seal Document addressed to Judge John G. Koeltl from Kevin J. Biron dated 03/18/2019 filed by Deutsche Bank National Trust Company, Deutsche Ba nk Trust Company Americas. The Court has considered all of the arguments of the parties. To the extent not specifically addressed above, the remaining arguments are either moot or without merit. For the reasons explained above, DB's supplement al motion for summary judgment is granted. DB's motions for summary judgment in the Phoenix Light Action and in the Commerzbank Action are granted in part and denied in part. The Plaintiffs' motion for partial summary judgment is denied. Th e Clerk is directed to enter judgment dismissing the Phoenix Light Action (14-cv-10103). The Clerk is directed to close all pending motions in the Phoenix Light Action (14-cv-10103). The Clerk is directed to close all pending motions in the Commerzba nk Action (15-cv-10031) and to lift the stay in that action. The parties in the Commerzbank Action are directed to submit a proposed Phase 2 scheduling order with respect to the outstanding claims in that action by February 25, 2022. SO ORDERED. (Signed by Judge John G. Koeltl on 2/8/2022) (va) Transmission to Orders and Judgments Clerk for processing.
Case 1:14-cv-10103-JGK-DCF Document 435 Filed 02/08/22 Page 1 of 114
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
────────────────────────────────────
PHOENIX LIGHT SF LTD., ET AL.,
Plaintiffs,
- against-
14-cv-10103 (JGK)
DEUTSCHE BANK NATIONAL TRUST CO. and
DEUTSCHE BANK TRUST COMPANY
AMERICAS,
Defendants.
COMMERZBANK AG,
Plaintiff,
- againstDEUTSCHE BANK NATIONAL TRUST CO. and
DEUTSCHE BANK TRUST COMPANY
AMERICAS,
15-cv-10031 (JGK)
OPINION AND ORDER
Defendants.
JOHN G. KOELTL, District Judge:
These actions, like others before them, were brought by
investors in residential mortgage-backed securities (“RMBS”)
seeking to recover losses sustained following the collapse of
the United States real estate market more than a decade ago. In
this case, RMBS certificateholders brought claims against RMBS
trustees alleging that the trustees breached their contractual,
fiduciary, statutory, and common law duties. Specifically,
Phoenix Light SF DAC (“Phoenix Light”), Blue Heron Funding V
Case 1:14-cv-10103-JGK-DCF Document 435 Filed 02/08/22 Page 2 of 114
Ltd., Blue Heron Funding VI Ltd., Blue Heron Funding VII Ltd.,
Blue Heron Funding IX Ltd., C-Bass CBO XVII Ltd., Kleros
Preferred Funding V PLC, Silver Elms CDO PLC, and Silver Elms
CDO II Limited (collectively, “Phoenix Light Plaintiffs”) and
Commerzbank (together with the Phoenix Light Plaintiffs, the
“Plaintiffs”), as certificateholders of RMBS, brought claims
against RMBS trustees, Deutsche Bank National Trust Co.
(“DBNTC”) and Deutsche Bank Trust Company Americas (“DBTCA,”
together with DBNTC, “DB”), asserting claims for violations of
the Trust Indenture Act of 1939 (“TIA”) and the New York Streit
Act, breaches of contractual and fiduciary duties and the
covenant of good faith, as well as negligence and gross
negligence. The Plaintiffs’ claims arise out of certificates
(the “Certificates”) issued by 85 RMBS trusts (the “Trusts”) for
which DB was the trustee. The Phoenix Light Plaintiffs’ claims
are based on RMBS Certificates issued by 43 Trusts;
Commerzbank’s claims are based on Certificates issued by 50
Trusts, with Certificates from eight Trusts in common with the
Phoenix Light Plaintiffs. After the Court granted in part and
denied in part motions to dismiss by DB in both cases, the
Phoenix Light Plaintiffs submitted a Third Amended Complaint,
Commerzbank submitted a Second Amended Complaint, and the
parties proceeded to the first phase of discovery.
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DB then filed a motion for summary judgment pursuant to
Federal Rule of Civil Procedure 56 in each action. The
Plaintiffs filed a single, joint motion for partial summary
judgment in both actions. 1 DB also filed a supplemental motion
for summary judgment in the Phoenix Light Action following the
decision by the Court of Appeals for the Second Circuit in
Phoenix Light SF DAC v. U.S. Bank Nat’l Ass’n, 2021 WL 4515256
(2d Cir. Oct. 4, 2021). For the following reasons, DB’s motions
for summary judgment are granted in part and denied in part.
DB’s supplemental motion for summary judgment is granted. The
Plaintiffs’ motion for partial summary judgment is denied.
I.
Background
The following facts are based on the parties’ Local Civil
Rule 56.1 statements, counterstatements, and supporting papers,
and are undisputed unless otherwise noted. The Court assumes
familiarity with RMBS in general, the RMBS securitization
process, and the roles of the various entities (such as the
sponsor, seller, servicer, and trustee) in RMBS trusts, as well
as its prior opinions in both actions. See Commerzbank AG v.
Deutsche Bank Nat’l Tr. Co., 234 F. Supp. 3d 462 (S.D.N.Y. 2017)
In this Opinion and Order, the “Phoenix Light Action” refers to case number
14-cv-10103 and citations in the form of “PL ECF No. __” are citations to the
docket in the Phoenix Light Action. Similarly, the “Commerzbank Action”
refers to case number 15-cv-10031 and citations in the form of “CB ECF No.
__” are citations to the docket in the Commerzbank Action.
1
3
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(“CB MTD Order”); Phoenix Light SF Ltd. v. Deutsche Bank Nat’l
Tr. Co., 172 F. Supp. 3d 700 (S.D.N.Y. 2016) (“PL MTD Order”). 2
A. RMBS
RMBS are certificates or notes that provide investors with
returns depending on the performance of the underlying mortgage
loan pool, often held in an RMBS trust. 3 Plaintiffs’ Combined
Statement of Undisputed Facts (“P-CSUF”) ¶¶ 10, 20. Generally,
in an RMBS securitization transaction, mortgage loans,
underwritten and made by “originators,” are conveyed to a
“sponsor” or “seller” who collects the mortgage loans into a
“pool,” which is then conveyed to a “depositor.” DB’s Reply to
the Phoenix Light Plaintiffs’ Responses to DB’s Statement of
Undisputed Facts ¶ 1 (“PL-RSUF”). The depositor then conveys the
loan portfolio to a trust or RMBS trustee and the right to
receive income from the principal and interest payments from the
portfolio is parceled into certificates and sold to investors.
Id. In connection with the conveyance of the pool of mortgage
loans, originators and/or sponsors make representations and
warranties (“R&Ws”) regarding the quality and character of the
Unless otherwise noted, this Opinion and Order omits all alterations,
omissions, emphasis, quotation marks, and citations in quoted text.
2
Although trusts governed by indentures (and related agreements) issue notes
rather than certificates, for purposes of this Opinion and Order, the RMBS
certificates or notes at issue are uniformly referred to as “certificates”
and investors in RMBS trusts are referred to as “certificateholders.” See
DB’s Reply to Commerzbank’s Responses to DB’s Statement of Undisputed Facts
¶ 5 n.3 (“CB-RSUF”).
3
4
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mortgage loan pools and the nature of their underwriting. P-CSUF
¶ 30. Finally, servicers are tasked with collecting payments on
the mortgages and enforcing loan terms, including foreclosing on
the property that secures the underlying mortgage loans if a
borrower defaults. See Plaintiffs’ Revised Responses to DB’s
Counter-Statement of Undisputed Facts ¶¶ 50-51 (“P-CSUF-Reply”);
Biron PL-Ex. 43; Biron CB-Ex. 43. For 12 of the Phoenix Light
Plaintiffs Trusts and 21 of the Commerzbank Trusts, a “Master
Servicer” was appointed and tasked with monitoring the
performance of other servicers. Biron PL-Ex. 44; Biron CB-Ex.
44.
B. The Trusts
The terms of an RMBS securitization trust, including the
powers and duties of the trustees and certificateholders, are
set forth in the trust’s governing agreements. Most of the
Trusts are governed by pooling and servicing agreements
(“PSAs”), while the remainder are governed by indentures and
related agreements (together with the PSAs, the “Governing
Agreements” or “GAs”). Biron PL-Exs. 25 (PSA Trusts), 26
(indenture Trusts); Biron CB-Exs. 25 (PSA Trusts), 26 (indenture
Trusts).
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Each Trust is governed by its own GA that sets out the
rights and duties of various parties, including DB. 4 Unless an
Event of Default (“EOD”) occurs and DB has a contractually
specified level of knowledge of that EOD, DB’s obligations are
limited to those explicitly laid out in the GAs. See Biron
PL-Ex. 35; Biron CB-Ex. 35. 5 The parties dispute the scope and
nature of DB’s obligations prior to the occurrence of an EOD and
whether DB was obligated to investigate potential EODs.
Nevertheless, the parties generally agree that after DB has the
contractually specified knowledge of an ongoing EOD, DB is
obligated to exercise the rights and powers vested in it under
the GAs to “use the same degree of care and skill in their
exercise as a prudent person would exercise or use under the
circumstance in the conduct of such person’s own affairs.” Biron
PL-Ex. 2 § 8.01; Handlin Ex. 390.
The GAs define the circumstances that trigger an EOD;
however, depending on the specific Trust’s GA, different default
Unlike those of an ordinary trustee at common law, the duties of an RMBS
trustee are “exclusively defined by the terms of the” contracts that govern
the trusts. Elliott Assocs. v. J. Henry Schroder Bank & Tr. Co.,
838 F.2d 66, 71 (2d Cir. 1988); Blackrock Core Bond Portfolio v. U.S. Bank
Nat’l Ass’n, 165 F. Supp. 3d 80, 91 (S.D.N.Y. 2016).
4
See, e.g., Biron PL-Ex. 2 §§ 8.01 (“The Trustee, before the occurrence of a
Master Servicer Event of Default and after the curing of all Master Servicer
Events of Default that may have occurred, shall under take to perform such
duties and only such duties as are specifically set forth in this
Agreement.”), 8.02(h) (“[U]nless a Responsible Officer of the Trustee has
actual knowledge of the occurrence of a Master Servicer Event of Default or
an Event of Default, the Trustee shall not be deemed to have knowledge of a
Master Servicer Event of Default or an Event of Default until a Responsible
Officer of the Trustee shall have received written notice thereof.”).
5
6
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events may trigger different consequences. See, e.g., P-CSUFReply ¶ 52. 6 Under the GAs for 12 of the Phoenix Light Plaintiffs
Trusts and 21 of the Commerzbank Trusts, DB was required to
provide notice to other specified parties if DB or another
enumerated party “discover[ed]” a material loan-level R&W
breach. Biron PL-Ex. 54; Biron CB-Ex. 54. Under the GAs for 31
of the Phoenix Light Plaintiffs Trusts and 29 of the Commerzbank
Trusts, DB was required to provide notice to other specified
parties if DB or another enumerated party received written
notice of, or otherwise discovered, a material loan-level
representation and warranty breach. Biron PL-Ex. 55; Biron CBEx. 55. However, DB contends that the GAs for 23 of the Trusts
at issue (8 Trusts for the Phoenix Light Plaintiffs, 17 for
Commerzbank, with 2 Trusts in common) do not require DB to
provide notice following an EOD. Goff Reply Ex. 11.
C. The Plaintiffs’ Claims
The Plaintiffs argue that certain defects in the mortgage
loan documentation, breaches of the R&Ws made by sellers or
originators regarding the underlying loans, and failures by
Servicers or Master Servicers to carry out their
GAs for different Trusts contemplate different consequences or triggers
depending on the specific default events. For example, under certain GAs,
only a default by a “Master Servicer” is sufficient to trigger DB’s “prudent
person” duties. P-CSUF-Reply ¶ 52. For purposes of this Opinion and Order,
“Event of Default” or “EOD” means those events that trigger DB’s “prudent
person” duties.
6
7
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responsibilities for underlying mortgage loan portfolios
constituted EODs under the GAs. The Plaintiffs further contend
that DB had knowledge of such EODs and was obliged to notify
certain parties and take other specific actions that DB failed
to take.
Under the GAs for all the Trusts, within a specified time
period after closing, DB (or a custodian) was required to issue
a final certification with an “exception report” listing, for
each mortgage custody file, whether any 0document was missing
and/or defective. Biron PL-Ex. 42; Biron CB-Ex. 42. The last of
the deadlines for DB or a custodian to issue an exception report
for Trusts with Certificates held by Phoenix Light Plaintiffs
was April 24, 2008, Biron PL-Ex. 42, and December 26, 2007 for
Trusts with Certificates held by CB. Biron CB-Ex. 42. Under
certain GAs, if missing or non-conforming mortgage documentation
remained uncured, or if certain seller or originator R&Ws were
materially breached, DB had the right to request that the
originator or seller substitute or repurchase loans as a remedy
for the defective loans or breached R&Ws. P-CSUF-Reply ¶ 46. The
Plaintiffs assert that DB had the duty and ability under each GA
to require sellers of the underlying mortgage loans to
repurchase loans that breached the R&Ws provided by the sellers
and to force servicers to foreclose on properties for underlying
mortgages in default. P-CSUF-Reply ¶ 22. DB contends that while
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it had the authority under certain Trusts to take such actions,
the obligations to enforce R&Ws breaches or remedy servicer
errors were not triggered until DB had “actual knowledge” of the
breach or default. Id. DB presents evidence that forcing
sponsors or other warrantors to repurchase mortgages would have
involved practical difficulties and costs. See, e.g., Biron PLEx. 39, 40; Goff Reply Ex. 31; P-CSUF-Reply ¶¶ 22, 33, 35.
Moreover, evidence in the record suggests that circumstances
could arise where different investors may have divergent
interests following an alleged breach. See, e.g., P-CSUF-Reply
¶ 35.
Generally, under the GAs, certificateholders are unable to
force DB to take specific actions unless the certificateholders
control 25% or more of the voting rights in the Trust. The
parties dispute the extent to which the certificateholders had
access to underlying loan documentation, and therefore whether
the certificateholders had the ability to confirm the
creditworthiness of the mortgage borrowers for the underlying
loans or whether breaches of individual loan terms had occurred.
P-CSUF-Reply ¶ 21. Similarly, the parties dispute the degree to
which the Plaintiffs had access to the identities of other
certificateholders, such that the Plaintiffs could organize
certificateholder support to direct DB’s actions. P-CSUF-Reply
¶ 38.
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DB, as trustee, was also entitled to certain exculpatory
limitations on its liability under the GAs. See, e.g., Biron PLExs. 37-40; Biron CB-Exs. 37-40. For example, the GAs for all
Trusts at issue contained clauses providing, in substance, that
DB was entitled to rely on information provided to it that it
believed to be genuine. Biron PL-Exs. 37-38; Biron CB-Exs. 3738; see also Biron PL-Ex. 2 § 8.01 (“The Trustee shall not be
responsible for the accuracy or content of any resolution,
certificate, statement opinion, report, order, document, or
other instrument.”). The GAs for all Trusts also included a
clause providing in substance that DB cannot be held liable for
actions taken in good faith at the direction of holders of a
specified percentage of Certificates. Biron PL-Ex. 39; Biron CBEx. 39.
Although the parties dispute whether DB failed to take
appropriate action following events that allegedly constituted
EODs, it is undisputed that between 2008 and 2010, DB notified
investors that an EOD occurred in several Commerzbank Trusts and
Phoenix Light Plaintiffs Trusts, which was triggered by the
Trusts falling below certain quantitative thresholds (the “Loss
EODs”). CB-RSUF ¶ 58; PL-RSUF ¶ 69. Similarly, it is undisputed
that in 2012, DB declared EODs for certain Commerzbank Trusts
and Phoenix Light Trusts because a rating agency downgraded the
ratings of the loan servicer for those Trusts, namely Ocwen Loan
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Servicing LLC (“Ocwen”) (the “2012 Downgrade EODs”). CB-RSUF
¶ 62; PL-RSUF ¶ 73. Further, it is undisputed that DB declared
an EOD after two other credit rating agencies downgraded Ocwen
in 2014 (the “2014 Downgrade EOD”). CB-RSUF ¶ 101; PL-RSUF ¶
118.
D. The Parties
DBNTC is a national banking association, with its principal
place of business in California. Both DBNTC and DBTCA administer
RMBS trusts, including the Trusts at issue in this case, from
offices in Santa Ana, California. PL-RSUF ¶ 86.
Commerzbank is a bank organized under the laws of Germany,
and, as of 2011, was Germany’s second largest bank with over
€660 billion in assets. CB-RSUF ¶¶ 51-52. Commerzbank is the
successor to the interests of Dresdner Bank AG (“Dresdner”)
following a merger in May 2009. P-CSUF ¶¶ 118-19. Commerzbank
asserts that it acquired the 74 Certificates at issue as legacy
Dresdner assets or through transfers from Eurohypo AG New York
Branch (“Eurohypo”) or Barrington II CDO Ltd. (“Barrington II”).
CB-RSUF-Reply ¶¶ 40-41. Commerzbank further asserts that
Barrington II assigned certain legal claims relating to
Certificates previously held by Barrington II to Commerzbank in
2012. P-CSUF ¶¶ 123-29. The parties agree that at some point,
Commerzbank possessed interests in 72 of the Certificates. CBRSUF ¶¶ 40. However, DB asserts that Commerzbank never held or
11
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had interests in two Certificates. CB-RSUF ¶ 45. Further, it is
undisputed that, prior to commencing these actions, Commerzbank
sold 27 of the Certificates at issue in this case. CB-RSUF ¶ 42.
In December 2013, Commerzbank commenced a lawsuit against
the depositors, sponsors, and underwriters for 51 of the 74
Certificates, alleging that the depositors, sponsors, and
underwriters had made false R&Ws. Commerzbank AG London Branch
v. UBS AG, No. 654464/2013, 2015 WL 3857321 (N.Y. Sup. Ct. June
17, 2015); PL-RSUF ¶ 33. On June 17, 2015, the New York State
Supreme Court dismissed these claims as untimely. The court
reasoned that Commerzbank’s fraud claims were “barred under [New
York’s] two-year discovery rule” because “all of the
certificates in question were downgraded by August 2009.” Id. at
*2. The court explained that Commerzbank should have discovered
any underlying fraud two years prior to commencing the suit
based on publicly available information regarding the poor
quality and management of mortgage loans underlying RMBS
securitizations. Id. The court further explained “that by
December 2011, investors had commenced such lawsuits involving
105 of the 146 offerings at issue here.” Id.
The Phoenix Light Plaintiffs are special purpose entities
created under Irish or Cayman law and have principal places of
business in Ireland or the Cayman Islands. P-CSUF ¶¶ 90-95. The
Phoenix Light Plaintiffs were formed to facilitate a
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securitization transaction, structured by WestLB AG (“WestLB”),
a failed German bank, to spin off certain non-performing assets.
PL-RSUF ¶ 37. At the closing of the WestLB transactions, a
portfolio of assets, including certain of the Certificates at
issue in this case, were transferred to the relevant Phoenix
Light Plaintiff; the Phoenix Light Plaintiffs simultaneously
issued notes back to WestLB and transferred the assets to one of
three indenture trustees. PL-RSUF ¶ 38; DB’s Reply to the
Phoenix Light Plaintiffs’ Response to DB’s Supplemental
Statement of Undisputed Material Facts ¶¶ 5-7 (“Supp. PL-RSUF”).
WestLB closed the securitization transactions involving all
Phoenix Light Plaintiffs other than Phoenix Light between 2005
and 2007. Supp. PL-RSUF ¶ 9.
The following undisputed facts are relevant to a single
plaintiff, Phoenix Light. At the relevant times, WestLB was
owned by several German entities, including the German State of
North Rhine-Westphalia (“NRW”). P-CSUF-Reply ¶ 92. When the
financial crisis began to unfold in 2007, the value of RMBS and
other asset classes to which WestLB had exposure sharply
declined. Id. To stabilize WestLB, NRW agreed to provide a €5
billion “risk shield” that would insulate WestLB from losses on
its RMBS and other high-risk assets. Id. In the risk shield
transaction, WestLB formed Phoenix Light and caused a portfolio
of its distressed assets to be transferred to Phoenix Light. Id.
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Phoenix Light simultaneously issued notes to WestLB and
transferred the asset portfolio to an indenture trustee. Id. The
notes issued to WestLB were entitled to receive cash flows
generated by the asset portfolio held by the indenture trustee.
WestLB’s other owners also agreed to bear a portion of any
losses covered by NRW’s risk shield. Id. The Phoenix Light risk
shield transaction closed on March 31, 2008.
After the closing of the risk shield transaction, the
European Commission determined the transaction constituted
“state aid” to WestLB and required that WestLB be wound up. Id.
In December 2009, the German Financial Market Stabilization
Authority established a German public entity (“EAA”) to “take
over and dispose of or wind up assets, liabilities and other
risk exposures of West LB AG.” Id. Following the asset transfer
to EAA, EAA recognized that “[a]s the owner of the Phoenix
[Light] notes, the EAA alone bears the economic risk of [the
Phoenix Light] portfolio in the event that the actual losses
exceed the guarantee commitments provided by the [German]
federal state and the savings banks.” Id.
In 2012 and 2013, EAA caused Phoenix Light and certain
other Phoenix Light Plaintiffs to commence legal actions against
sponsors, originators, and underwriters for numerous RMBS
trusts, including 33 of the Trusts at issue in this case. Biron
PL-Ex. 75. In December 2014, EAA caused eight of the ten Phoenix
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Light Plaintiffs to file an action in this district against U.S.
Bank National Association (“U.S. Bank”) who, like DB, served as
the RMBS trustee for certain certificates to which the Phoenix
Light Plaintiffs claim an interest. See Phoenix Light SF Ltd. v.
U.S. Bank N.A. Nat’l Ass’n, No. 14-cv-10116 (S.D.N.Y., filed
December 24, 2014) (the “PL v. U.S. Bank Action”). 7 In the PL v.
U.S. Bank Action, Judge Forrest dismissed the plaintiffs’ claims
for lack of standing because under the relevant agreements, only
the indenture trustees, not the certificateholder-plaintiffs,
had the right to pursue claims arising out of the certificates.
Phoenix Light SF Ltd. v. U.S. Bank Nat’l Ass’n, No. 14-cv-10116,
2015 WL 2359358, at *2-3 (S.D.N.Y. May 18, 2015). Following
Judge Forrest’s decision, EAA caused the indenture trustees to
assign the claims at issue in the PL v. U.S. Bank Action and in
the Phoenix Light Action to the Phoenix Light Plaintiffs. Supp.
PL-RSUF ¶ 18; PL-RSUF ¶ 60.4.9.
E. Procedural History
The Phoenix Light Plaintiffs have filed four complaints in the
Phoenix Light Action: an original complaint on December 23, 2014
7 All the Phoenix Light Plaintiffs except for Blue Heron V and Blue Heron IX
were plaintiffs in the PL v. U.S. Bank Action. Certain Phoenix Light
Plaintiffs also filed other lawsuits in this district around this same time,
including this action. Phoenix Light SF Ltd. v. Bank of New York-Mellon, No.
14-cv-10104 (S.D.N.Y., filed December 23, 2014); Phoenix Light SF Ltd. v.
Wells Fargo Bank, No. 14-cv-10102 (S.D.N.Y., filed December 23, 2014);
Phoenix Light SF Ltd. v. HSBC Bank USA, N.A., No. 14-cv-10101 (S.D.N.Y.,
filed December 23, 2014); Supp. PL-RSUF ¶ 16.
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asserting claims relating to 35 Certificates; a First Amended
Complaint (“PL FAC”) on April 10, 2015, adding new claims
relating to 52 additional Certificates, including those issued
by different Trusts with different GAs; a Second Amended
Complaint (“PL SAC”) on July 15, 2015, following the assignments
of the right to sue from the indenture trustees; and a Third
Amended Complaint (“PL TAC”) on September 28, 2017, which
asserted new claims concerning certain EODs that DB had
declared.
Commerzbank commenced the Commerzbank Action on December
23, 2015. Commerzbank subsequently filed a First Amended
Complaint (“CB FAC”) on April 15, 2016, and a Second Amended
Complaint on December 1, 2017 (“CB SAC”).
DB filed motions to dismiss portions of PL SAC and CB SAC,
which the Court granted in part and denied in part. In relevant
part, the Court dismissed (1) the Plaintiffs’ claims for
violations of the Streit Act with prejudice; (2) the Plaintiffs’
TIA claims arising out of the PSA Trusts with prejudice; and (3)
the Phoenix Light Plaintiffs’ claims relating to “document
delivery failures” as time-barred. See CB MTD Order, 234 F.
Supp. 3d at 474; PL MTD Order, 172 F. Supp. 3d at 709, 722-23. 8
8 The Plaintiffs asserted TIA claims as to the PSA Trusts and Streit Act
claims in the subsequently filed PL TAC and CB SAC for the purposes of
preserving those issues for appeal. PL TAC ¶¶ 168-77, 194-200 & n.8, 11; CB
SAC ¶¶ 172-82, 203-10 & n.9, 10. In the PL TAC, the Phoenix Light Plaintiffs
also preserved for appeal claims relating to document delivery failures. PL
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In the PL TAC, the Phoenix Light Plaintiffs brought claims
based on Certificates issued by 43 Trusts, with an original face
value of over $750 million. In the CB SAC, Commerzbank brought
claims based on Certificates issued by 50 Trusts, with a
purchase value of approximately $600 million.
At the parties’ request, the Court entered a bifurcated
schedule for expert discovery and dispositive motions in these
actions. In “Phase 1,” expert discovery and the parties’
dispositive motions focused on issues other than loan-level reunderwriting and damages, leaving such issues for a “Phase 2” of
expert discovery and dispositive motions, if necessary. PL ECF
No. 205.
II.
Legal Standard
The standard applicable to a motion for summary judgment is
well established. “The court should grant a summary judgment if
the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter
of law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v.
Cartrett, 477 U.S. 317, 322-23 (1986). “[T]he trial court’s task
at the summary judgment motion stage of the litigation is
carefully limited to discerning whether there are any genuine
issues of material fact to be tried, not to deciding them.”
TAC ¶¶ 178-86 n.9. All those claims are dismissed for the reasons previously
explained in the CB MTD Order and the PL MTD Order.
17
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Gallo v. Prudential Residential Servs., Ltd. P’ship, 22 F.3d
1219, 1224 (2d Cir. 1994). The Court’s “duty, in short, is
confined at this point to issue-finding,” and “does not extend
to issue-resolution.” Id.
The moving party bears the initial burden of “informing the
district court of the basis for its motion” and identifying the
matter that “it believes demonstrate[s] the absence of a genuine
issue of material fact.” Celotex, 477 U.S. at 323. The
substantive law governing the case will identify those facts
that are material and “[o]nly disputes over facts that might
affect the outcome of the suit under the governing law will
properly preclude the entry of summary judgment.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
In determining whether summary judgment is appropriate, a
court must resolve all ambiguities and draw all reasonable
inferences against the moving party. See Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). “Summary
judgment should be denied if, when the party against whom
summary judgment is sought is given the benefit of all
permissible inferences and all credibility assessments, a
rational factfinder could resolve all material factual issues in
favor of that party.” Soto v. Gaudett, 862 F.3d 148, 157 (2d
Cir. 2017). If the moving party meets its burden, the nonmoving
party must produce evidence in the record and “may not rely
18
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simply on conclusory statements or on contentions that the
affidavits supporting the motion are not credible.” Ying Jing
Gan v. City of New York, 996 F.2d 522, 532 (2d Cir. 1993).
Claims alleging violations of the TIA, breach of contract,
breach of the covenant of good faith, and breach of fiduciary
duty arising out of RMBS trusts “must be proved loan-by-loan and
trust-by-trust,” and not based on generalized, non-specific
evidence of breaches. See Retirement Bd. of the Policemen’s
Annuity and Benefit Fund of the City of Chicago v. Bank of N.Y.
Mellon, 775 F.3d 154, 162 (2d Cir. 2014); Phoenix Light SF Ltd.
v. Bank of N.Y. Mellon, No. 14-cv-10104, 2017 WL 3973951, at *7–
8 (S.D.N.Y. Sept. 7, 2017) (“[B]y summary judgment or trial the
plaintiffs must present evidence that proves a specific breach
of a [R&W] as to any loan or trust for which plaintiffs allege
there was a breach.”).
III.
DB moves for summary judgment dismissing all the
Plaintiffs’ claims, arguing that (1) the Plaintiffs lack
standing to raise claims related to certain Certificates; (2)
many of the Plaintiffs’ claims are time-barred; and (3) the
Plaintiffs’ claims fail on the merits as a matter of law. As
explained below, the Plaintiffs have failed to demonstrate that
they have Article III or prudential standing to assert claims
arising out of certain Certificates. Moreover, many of the
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Plaintiffs’ claims are time-barred and other claims fail on
their merits as a matter of law.
A. Standing
DB argues that the Phoenix Light Plaintiffs lack Article
III and prudential standing because the assignments of all the
claims that the Phoenix Light Plaintiffs are pursuing in this
action violate New York’s prohibition on champerty and
accordingly are void. DB also contends that the Phoenix Light
Plaintiffs and Commerzbank lack standing to assert claims
arising out of specific Certificates because (1) the
Certificates were sold prior to the commencement of these
actions; (2) there is no evidence that the Plaintiffs ever held
the Certificates; or (3) Phoenix Light failed to satisfy
relevant contractual conditions precedent prior to bringing its
suit.
1. Champerty
While the parties’ cross-motions for summary judgment were
pending, the Court of Appeals for the Second Circuit issued a
summary order affirming Judge Broderick’s grant of summary
judgment dismissing the PL v. U.S. Bank Action. 9 See Phoenix
Light SF DAC v. U.S. Bank Nat’l Ass’n, 2021 WL 4515256 (2d Cir.
Oct. 4, 2021) (“PL v. U.S. Bank III”), aff’g Phoenix Light SF
After Judge Forrest dismissed the PL v. U.S. Bank Action without prejudice
because the plaintiffs lacked standing, the case was reassigned to Judge
Broderick.
9
20
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Ltd. v. U.S. Bank Nat’l Ass’n, No. 14-cv-10116, 2020 WL 1285783
(S.D.N.Y. Mar. 18, 2020) (“PL v. U.S. Bank I”), reconsideration
denied, No. 14-cv-10116, 2020 WL 4699043 (S.D.N.Y. Aug. 12,
2020) (“PL v. U.S. Bank II”).
In PL v. U.S. Bank I, Judge Broderick found that there was
no genuine material factual dispute that the assignments of the
claims in that action from the indenture trustees to the eight
Phoenix Light Plaintiffs were executed “for the sole purpose of
pursuing [the PL v. U.S. Bank Action], and for no other reason.”
2020 WL 1285783, at *12. Accordingly, Judge Broderick concluded
that the assignments were void as champertous under New York
Judiciary Law § 489 and that consequently, the eight Phoenix
Light Plaintiffs lacked Article III and prudential standing to
assert claims arising out of those certificates. Id. at *12-13,
16. Judge Broderick also explained that because the eight
Phoenix Light Plaintiffs had previously executed a complete
transfer of their interests in the relevant certificates to the
indenture trustees, the eight Phoenix Light Plaintiffs lacked
any “preexisting proprietary interest” in the certificates and
therefore could not take advantage of the so-called Love Funding
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exception to New York’s prohibition on champerty. Id. at *1315. 10
After Judge Broderick denied the eight Phoenix Light
Plaintiffs’ motion for reconsideration, PL v. U.S. Bank II, 2020
WL 4699043, the plaintiffs appealed to the Court of Appeals for
the Second Circuit. The court of appeals affirmed Judge
Broderick’s decisions in a summary order dated October 4, 2021.
“Based on the factual findings of the District Court,” the court
of appeals concluded that the assignments at issue were
champertous and that the eight Phoenix Light Plaintiffs lacked
prudential standing. PL v. U.S. Bank III, 2021 WL 4515256, at
*1-2. The Court also rejected the eight Phoenix Light
Plaintiffs’ arguments that the Love Funding exception applied
and affirmed Judge Broderick’s finding that the plaintiffs did
not have a “preexisting proprietary interest” in the
certificates. Id. at *2. 11
On October 13, 2021, this Court directed the parties in the
Phoenix Light Action to submit supplemental summary judgment
In Tr. for the Certificate Holders of Merrill Lynch Mortg. Invs., Inc. v.
Love Funding Corp., 918 N.E.2d 889 (N.Y. 2009), in response to a certified
question from the Court of Appeals for the Second Circuit, the New York Court
of Appeals explained that “a corporation or association that takes an
assignment of a claim does not violate [New York’s statutory prohibition on
champerty] if its purpose is to collect damages, by means of a lawsuit, for
losses on a debt instrument in which it holds a preexisting proprietary
interest.” Id. at 891.
10
The court of appeals “assum[ed] Article III standing” in order to address
prudential standing but did not analyze whether the plaintiffs actually had
Article III standing to pursue their claims. See id. at *1.
11
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briefing addressing PL v. U.S. Bank III. PL ECF No. 419. The
court of appeals denied the eight Phoenix Light Plaintiffs’
petition for panel rehearing and rehearing en banc on November
19, 2021 and issued its mandate on November 29, 2021.
a. Collateral Estoppel
In its supplemental motion for summary judgment, DB
contends that the Phoenix Light Action should be dismissed
because the Phoenix Light Plaintiffs are collaterally estopped
by the PL v. U.S. Bank Action from relitigating the issues of
prudential standing and champerty.
“Collateral estoppel, or issue preclusion, prevents parties
or their privies from relitigating in a subsequent action an
issue of fact or law that was fully and fairly litigated in a
prior proceeding.” M.O.C.H.A. Soc’y, Inc. v. City of Buffalo,
689 F.3d 263, 284 (2d Cir. 2012). “The preclusive effect of a
judgment rendered by a federal court sitting in diversity,” such
as the court in the PL v. U.S. Bank Action, “is determined by
the law of state in which the rendering court sat.” See Stinnett
v. Dela Air Lines, Inc., 803 F. App’x 505, 508 n.3 (2d Cir.
2020) (citing Semtek Int’l Inc. v. Lockheed Martin Corp., 531
U.S. 497, 508 (2001)). Under New York law, collateral estoppel
applies to an issue that is (1) identical to an issue already
decided (2) in a previous proceeding in which that party had a
full and fair opportunity to litigate and (3) the issue
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previously raised is decisive of the present action. Curry v.
City of Syracuse, 316 F.3d 324, 331 (2d Cir. 2003). 12
Although lack of subject matter jurisdiction is not a
merits-based decision and therefore is not afforded preclusive
effect, “the factual issues the prior court decided in reaching
a determination regarding subject[]matter jurisdiction do have
preclusive effect.” Phoenix Light SF Ltd v. Bank of N.Y. Mellon,
No. 14-cv-10104, 2022 WL 92213, at *2 (S.D.N.Y. Jan. 7, 2022)
(concluding that certain of the Phoenix Light Plaintiffs were
collaterally estopped by PL v. U.S. Bank III and lacked
prudential standing to maintain claims against an RMBS trustee)
(“PL v. BNYM”). Accordingly, courts in this district have
“applied collateral estoppel to the issue of standing.”
Hollander v. Members of Bd. of Regents of Univ., No. 10-cv-9277,
2011 WL 5222912, at *2 (S.D.N.Y. Oct. 31, 2011), aff’d, 524 F.
App’x 727 (2d Cir. 2013).
The Phoenix Light Plaintiffs are collaterally estopped from
relitigating the issues of prudential standing and champerty
because all the requirements for collateral estoppel are met and
the arguments advanced against the application of collateral
estoppel are without merit. First, the issues of champerty and
Cases applying collateral estoppel under federal common law are relevant
here because “there is no material difference between federal and New York
State preclusion principles.” Twersky v. Yeshiva Univ., 112 F. Supp. 3d 173,
179 (S.D.N.Y. 2015), aff’d sub nom. Gutman v. Yeshiva Univ., 637 F. App’x 48
(2d Cir. 2016).
12
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prudential standing presented here are identical to the issues
decided in the PL v. U.S. Bank Action. It is undisputed that the
assignments that the Phoenix Light Plaintiffs rely on to assert
their claims here are the exact same assignments that Judge
Broderick and the court of appeals found to be invalid and
champertous. Supp. PL-RSUF ¶ 23. It is further undisputed that
the deposition testimony in the record here includes the exact
same testimony that Judge Broderick and the court of appeals
relied on when determining that the assignments at issue were
executed with champertous intent. Id. ¶¶ 21, 25. Finally, it is
undisputed that the granting clauses in the agreements between
the Phoenix Light Plaintiffs and the indenture trustees at issue
in the PL v. U.S. Bank Action are either identical or materially
identical to the granting clauses at issue here. Id. ¶¶ 25-26.
Second, the Phoenix Light Plaintiffs had a full and fair
opportunity to litigate the issues of prudential standing and
champerty in the PL v. U.S. Bank Action. The eight Phoenix Light
Plaintiffs that were parties in the PL v. U.S. Bank Action took
full advantage of the opportunity to pursue vigorously their
claims before the district court and court of appeals. 13 Although
This requirement is satisfied even though the Phoenix Light Plaintiffs
advance additional arguments here that they undoubtedly could have raised
before Judge Broderick and the court of appeals. See PL v. BNYM, 2022 WL
92213, at *5 n.14 (“That Plaintiffs failed to take advantage of the
opportunity to present [additional arguments] to Judge Broderick does not
mean they were not given the opportunity to do so.”).
13
25
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Blue Heron V and Blue Heron IX (the “Blue Heron Plaintiffs”)
were not parties to PL v. U.S. Bank Action, the opportunity-tolitigate factor can be satisfied where, as here, “the part[ies]
in question [are] controlled by a party in a related action. The
Second Circuit applies the doctrine of privity with flexibility
when it comes to issue preclusion; so long as the interests of
the nonpart[ies] were adequately represented,” the application
of collateral estoppel is permissible. See PL v. BNYM, 2022 WL
92213, at *4-5 (concluding that Blue Heron V was collaterally
estopped by the PL v. U.S. Bank Action); see also Buechel v.
Bain, 766 N.E.2d 914, 920 (N.Y. 2001) (explaining that privity
in the context of collateral estoppel includes “those who
control an action although not formal parties to it [and] those
whose interests are represented by a party to the action”).
Privity is satisfied with respect to the Blue Heron
Plaintiffs because it is undisputed that: (1) EAA, through
Phoenix Light, is the controlling noteholder of all the Phoenix
Light Plaintiffs, has an economic stake in the Phoenix Light
Plaintiffs’ litigation, and exercises some measure of control
over all the Phoenix Light Plaintiffs, Supp. PL-RSUF ¶¶ 27-28,
PL SAC ¶ 38; (2) the Blue Heron Plaintiffs were parties to one
of the assignment agreements that was found to be champertous in
PL v. U.S. Bank Action, Supp. PL-RSUF ¶ 29; (3) all the
directors of the Blue Heron Plaintiffs served as directors for
26
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plaintiffs that participated in the PL v. U.S. Bank Action, id.
¶ 28; and (4) the Phoenix Light Action and the PL v. U.S. Bank
Action are prosecuted by the same counsel. Id. These facts
conclusively establish that the Blue Heron Plaintiffs’ interests
were adequately protected in the PL v. U.S. Bank Action and
demonstrate that there is “sufficient privity” between the Blue
Heron Plaintiffs and the eight other Phoenix Light Plaintiffs.
See PL v. BNYM, 2022 WL 92213, at *4-5; see also Phoneix Light
SF Ltd v. Wells Fargo Bank, N.A., No. 14-cv-10102, ECF No. 645
at 16 (S.D.N.Y. Dec. 6, 2021) (report and recommendation;
finding that both Blue Heron Plaintiffs are in privity with the
plaintiffs in the PL v. U.S. Bank Action and subject to
collateral estoppel).
Third, the issues decided by the court of appeals relating
to champerty and prudential standing are dispositive of the
present action. Without prudential standing, the Phoenix Light
Plaintiffs cannot assert claims arising out of the Certificates
and the entire Phoenix Light Action must be dismissed.
Although the requirements for the application for
collateral estoppel are met, the Phoenix Light Plaintiffs
contend that they should not be precluded by the PL v. U.S. Bank
Action for several unpersuasive reasons. First, they argue that
DBTCA is not entitled to invoke the equitable defense of
collateral estoppel because it was a party, in the capacity as
27
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indenture trustee, to two of the champertous assignments at
issue and therefore has unclean hands. “Courts apply the maxim
requiring clean hands where the party asking for the invocation
of an equitable doctrine has committed some unconscionable act
that is directly related to the subject matter in litigation and
has injured the party attempting to invoke the doctrine.”
PenneCom B.V. v. Merrill Lynch & Co., Inc., 372 F.3d 488, 493
(2d Cir. 2004) (citing Weiss v. Mayflower Doughnut Corp., 135
N.E.2d 208, 210 (N.Y. 1956)). The Phoenix Light Plaintiffs’
argument fails because there is no evidence that DBTCA committed
any unconscionable act or engaged in any relevant conduct
involving “fraud, deceit,” or “bad faith.” See Marathon Outdoor,
LLC v. Vesconti, 107 F. Supp. 2d 355, 360 n.9 (S.D.N.Y. 2000).
It is undisputed that EAA or Phoenix Light directed DBTCA to
assign the relevant claims to the Phoenix Light Plaintiffs and
that EAA or Phoenix Light agreed to indemnify DBTCA against any
losses to DBTCA arising from DBTCA’s following their directions.
Supp. PL-RSUF ¶¶ 18-20. DBTCA’s compliance with the express
directions of EAA/Phoenix Light, which exercised their power as
controlling parties under the GAs, is in no way unconscionable,
fraudulent, or deceitful, and cannot now be relied on by the
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Phoenix Light Plaintiffs to avoid the consequences of the
champertous assignments that EAA/Phoenix Light orchestrated. 14
Second, the Phoenix Light Plaintiffs argue that the issues
decided in the Phoenix Light Action are purely legal and cannot
be subject to collateral estoppel. However, this argument fails
because Judge Broderick explained that the question of
champertous intent, an essential element of champerty, is a
“factual question” and discussed the record evidence before him
at length before finally concluding that the assignments were
void. See PL v. U.S. Bank, 2020 WL 1285783, at *11-13; see also
Justinian Capital SPC v. WestLB AG, 65 N.E.3d 218, 221 (N.Y.
2016) (conduct cannot be champertous unless the intent and
purpose of that conduct was to bring a suit). The court of
appeals likewise concluded, “[b]ased on the factual findings of
the District Court,” that the assignments “were indeed
champertous” and that the plaintiffs therefore lacked prudential
The Phoenix Light Plaintiffs contend that their unclean hands argument is
supported by the New York Court of Appeals’ decision in Irwin v. Curie, 64
N.E. 161 (N.Y. 1902). In Irwin, a breach of contract action, the court did
not allow a defendant-attorney to invoke the defense that the contract was
void because the defendant (but not the plaintiff) was prohibited by statute
from having entered into the contract in the first place. Id. at 161-62 (the
“statute was leveled against attorneys and counselors, to the ranks of which
this defendant belonged . . . but did not prohibit plaintiff from making such
a contract.”). The court reasoned that although the contract was illegal, the
plaintiff, as “the more innocent party,” was entitled to enforce the contract
against the defendant. Id. But Irwin does not save the Phoenix Light
Plaintiffs’ claims because they are not innocent parties to the assignments
that EAA/Phoenix Light directed and brought about. It is undisputed that
DBTCA simply followed EAA/Phoenix Light’s directions and did not otherwise
engage in any inequitable conduct.
14
29
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standing. PL v. U.S. Bank III, 2021 4515256 at *1; see also
Rosenberg v. Shemiran Co., LLC, No. 20-cv-2259, 2020 WL 1953627,
at *3 (S.D.N.Y. Apr. 22, 2020) (the “doctrine of issue
preclusion bars relitigation of the specific issues that the
prior court decided in reaching its jurisdictional
determination”).
Third, the Phoenix Light Plaintiffs contend that collateral
estoppel should not apply here because the holding in PL v. U.S.
Bank III was “supported by alternate grounds.” This argument is
without merit because the court of appeals’ decision was based
solely on a finding that the plaintiffs lacked prudential
standing because the assignments were champertous. The court of
appeals did not reach the issue of Article III standing or
support its ruling by any other alternative ground. 15
Finally, the Phoenix Light Plaintiffs argue that Fund
Liquidation Holdings LLC v. Bank of Am. Corp, 991 F.3d 370 (2d
Cir. 2021), which was decided during the pendency of the appeal
in the PL v. U.S. Bank Action, undermines the decision in PL v.
U.S. Bank III. However, the eight Phoenix Light Plaintiffs
The court of appeals resolved whether the plaintiffs had prudential
standing without addressing whether the plaintiffs have Article III standing.
This demonstrates that it is proper to “assume Article III standing and
address the alternative threshold question of whether a party has prudential
standing.” PL v. U.S. Bank III, 2021 WL 4515256, at *1 (quoting Hillside
Metro Assocs., LLC v. JPMorgan Chase Bank, Nat’l Ass’n, 747 F.3d 44, 48 (2d
Cir. 2014)). Accordingly, arguments to the contrary advanced by the Phoenix
Light Plaintiffs are without merit.
15
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raised arguments based on Fund Liquidation to the court of
appeals before it rendered its decision in a Federal Rule of
Appellate Procedure 28(j) letter. PL v. U.S. Bank III, No. 201312-cv, ECF No. 133 (2d Cir., filed Mar. 22, 2021). Because the
court of appeals rendered its decision in PL v. U.S. Bank III
despite being made aware of the plaintiffs’ Fund Liquidation
arguments, that case does not strip PL v. U.S. Bank III of its
preclusive effect.
For these reasons, the Phoenix Light Plaintiffs are
collaterally estopped from relitigating the issues of champerty
and prudential standing. Under PL v. U.S. Bank III, the
assignment of all the claims advanced in the Phoenix Light
Actions are void as champertous and the Phoenix Light Plaintiffs
lack prudential standing to pursue their claims. 16 Accordingly,
DB’s supplemental motion for summary judgment dismissing all the
claims in the Phoenix Light Action is granted. 17
All the Phoenix Light Plaintiffs would lack prudential standing to pursue
their claims here even if they were afforded an opportunity to relitigate the
issues from the PL v. U.S. Bank Action. See PL v. BNYM, 2022 WL 92213, at *5
n.15 (“The Court also notes that it need not rely on issue preclusion . . . .
because the Second Circuit’s reasoning in [PL v. U.S. Bank III] would
necessitate the same outcome under a fresh analysis.”). Although PL v. U.S.
Bank III is a summary order, it dealt with identical or materially identical
parties, issues, and facts to those presented here. See L.O. v. N.Y.C. Dep’t
of Educ., 822 F.3d 95, 123 n.17 (2d Cir. 2016) (“[D]enying summary orders
precedential effect does not mean that the court considers itself free to
rule differently in similar cases.”). The Phoenix Light Plaintiffs have
offered no persuasive reason for this Court to depart from the well-reasoned
conclusions in PL v. U.S. Bank I and PL v. U.S. Bank III, which applied
established precedent from this Circuit and the New York state courts. See PL
v. BNYM, 2022 WL 92213, at *5 n.15.
16
Because the Phoenix Light Plaintiffs lack prudential standing to pursue any
claims in the Phoenix Light Action, the entire action is dismissed on that
17
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2. Sold Certificates
It is undisputed that Commerzbank is asserting claims arising
out of 27 Certificates that it sold prior to commencing the
Commerzbank Action and that the Phoenix Light Plaintiffs are
asserting claims arising out of six Certificates that they sold
prior to commencing the Phoenix Light Action (the “Sold
Certificates”). See Biron CB-Ex. 27 (Commerzbank Sold
Certificates); Biron PL-Ex. 27 (Phoenix Light Plaintiffs Sold
Certificates). For the six Phoenix Light Plaintiffs Sold
Certificates, the sales contracts did not provide that the
relevant indenture trustee for the Phoenix Light Plaintiff would
retain claims that may have accrued before the sale of the Sold
Certificates. PL-RSUF ¶ 40. For the 27 Commerzbank Sold
Certificates, the Plaintiffs have presented no evidence that any
sales contract provided that Commerzbank would retain claims
that may have arisen before the sale of the Sold Certificates.
CB-RSUF ¶ 43. DB argues that the Plaintiffs therefore lack
standing to assert claims relating to the Sold Certificates.
Article III of the United States Constitution limits the
jurisdiction of federal courts to “cases” and “controversies.”
See Lujan v. Defenders of Wildlife, 504 U.S. 555, 559 (1992). To
basis alone. However, DB advanced numerous arguments in its original motion
for summary judgment as to why the Phoenix Light Plaintiffs’ claims should be
dismissed. Those arguments are addressed below and constitute alternative
holdings supporting the dismissal of those claims.
32
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satisfy the requirements of Article III standing, a plaintiff
must show that (1) the plaintiff has suffered an actual or
imminent injury in fact, which is concrete and particularized;
(2) there is a causal connection between the injury and
defendant’s actions; and (3) it is likely that a favorable
decision in the case will redress the injury. See id. at 560–61.
“The party invoking federal jurisdiction bears the burden of
establishing these elements.” Id. at 561; see also Springer v.
U.S. Bank Nat’l Ass’n, No. 15-cv–1107, 2015 WL 9462083, at *3
(S.D.N.Y. Dec. 23, 2015). The Plaintiffs bear the burden of
establishing “standing for each claim [they] seek[] to press and
for each form of relief that is sought.” PL v. U.S. Bank I, 2020
WL 1285783, at *10 (quoting Davis v. Fed. Election Comm’n, 554
U.S. 724, 734 (2008)). Generally, in breach of contract cases,
“the minimum requirement for an injury-in-fact is that the
plaintiff have legal title to, or a proprietary interest in, the
claim [at issue].” Cortlandt St. Recovery Corp. v. Hellas
Telecommunications S.a.r.L., 790 F.3d 411, 420 (2d Cir. 2015).
However, courts have recognized that a valid assignment to a
plaintiff of the right at issue allows the plaintiff to “stand
in the place of the injured party” and can be sufficient to
satisfy standing. Id. at 418; see also PL v. U.S. Bank I, 2020
WL 1285783, at *9-10.
33
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Because “[t]here is no uniform law controlling the
assignment of the accompanying litigation rights when [RMBS]
certificates are transferred,” Royal Park Invs. SA/NV v. U.S.
Bank N.A., 324 F. Supp. 3d 387, 398 (S.D.N.Y. 2018), the parties
agree that the question of which jurisdiction’s law applied to
the Sold Certificates’ sales transactions may determine whether
the Plaintiffs have standing to pursue claims relating to the
Sold Certificates. The Plaintiffs argue, and DB does not appear
to dispute, that under Irish, Cayman, or English law, sellers
retain litigation rights in sold securities even if the sales
contracts do not contain express provisions so stating. The
parties also do not dispute that “under New York law, claims
travel with the security unless expressly reserved in writing.”
Commerzbank AG v. U.S. Bank Nat’l Ass’n, 457 F. Supp. 3d 233,
243 (S.D.N.Y. 2020) (applying New York law; concluding
Commerzbank lacked standing to pursue claims related to
certificates sold prior to commencement of the suit); see N.Y.
Gen. Oblig. Law § 13-107.
A federal court sitting in diversity applies the choice of
law rules of the forum state. Klaxon Co. v. Stentor Co., 313
U.S. 487 (1941); Kinsey v. New York Times Co., 991 F.3d 171, 176
(2d Cir. 2021). Accordingly, New York’s choice of law rules
apply to the Sold Certificate transactions.
34
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To determine which jurisdiction’s law governs a contract,
courts applying New York choice of law rules employ a “center of
gravity” or “grouping of contacts” analysis to determine which
jurisdiction has “the most significant relationship to the
transaction and the parties,” based on a consideration of
several factors including: “the place of contracting,” “the
places of negotiation and performance; the location of the
subject matter; and the domicile or place of business of the
contracting parties.” Zurich Ins. Co. v. Shearson Lehman Hutton,
Inc., 642 N.E.2d 1065, 1068 (N.Y. 1994). Both parties
acknowledge that under this test, the location of the actual
contracting parties to a sale carries more weight than the
location of a broker involved with the transaction. Opp’n at 5;
Reply at 2-3; see Royal Park Invs. SA/NV v. Bank of New York
Mellon, No. 14-cv-6502, 2019 WL 652841, at *7 (S.D.N.Y. Feb. 15,
2019) (under New York’s center of gravity test, inquiry into the
identity of a sold certificate’s beneficial owner is necessary
to determine whether a party has standing to assert claims
relating to that security).
The Plaintiffs have failed to produce evidence regarding
the identity and location of the ultimate purchasers of the Sold
Certificates. Biron CB-Ex. 22; CB-RSUF ¶¶ 42-44; PL-RSUF ¶¶ 4041. The Plaintiffs did produce trade tickets listing the
counterparties for certain sales, e.g., Handlin Exs. 122, 124,
35
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128, 130, 134, but do not have any information regarding whether
those counterparties purchased the Certificates for their own
accounts or on behalf of their clients.
The Plaintiffs argue that even though the identities of the
ultimate purchasers of the Sold Certificates are unknown,
application of Irish, English, or Cayman law to the Sold
Certificates transactions is proper under the center of gravity
test. The Plaintiffs note that Phoenix Light is an Irish company
with a Board of Directors in Ireland and that Blue Heron is
incorporated in the Cayman Islands with a Board of Directors in
Grand Cayman. The Plaintiffs also argue that Phoenix Light and
Blue Heron held, administrated, and sold the relevant
Certificates in Ireland and the Cayman Islands, respectively.
With respect to Commerzbank, the Plaintiffs argue that English
law applies, in part because the Sold Certificates were sold
with the involvement of staff from Commerzbank’s London branch.
The Plaintiffs’ arguments are without merit. It is the
Plaintiffs’ burden to demonstrate their standing to sue for
claims related to each Certificate. See Commerzbank AG, 457 F.
Supp. 3d at 243. However, the Plaintiffs have not come forward
with the evidence necessary to demonstrate what law applies
under New York’s center of gravity test and therefore cannot
demonstrate that they retained claims relating to the Sold
Certificates. See BlackRock Balanced Cap. Portfolio (FI) v.
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Deutsche Bank Nat’l Tr. Co., No. 14-cv-09367, 2018 WL 5619957,
at *11 (S.D.N.Y. Aug. 7, 2018) (noting that to establish
standing to pursue claims arising out of RMBS certificates,
“tracing [the chain of title] is only the first step in learning
who retains the litigation rights,” because an “individualized
inquiry to learn who retained the litigation rights for each
security” is required). 18
As discussed above, the identity and location of the
ultimate buyers of the Sold Certificates are unknown. The fact
that Phoenix Light and Blue Heron are incorporated in the
Ireland and the Cayman Islands, respectively, does not remedy
this failure of proof. 19 Moreover, the fact that Commerzbank’s
London branch was involved in the Sold Certificates transactions
is not dispositive. Branches are not juridical entities distinct
from their bank and courts in this district have consistently
rejected arguments that a branch should be treated as a separate
The Plaintiffs argue that because DB moved for summary judgment, the burden
is on DB to establish what law applies to the Sold Certificates transactions.
This misconstrues DB’s burden at summary judgment and the need for the
Plaintiffs to demonstrate standing for each claim they pursue. Having
demonstrated “the absence of evidence to support the nonmoving party’s case,”
DB has discharged its burden, and the Plaintiffs, as the nonmoving parties,
must produce evidence in the record to support their standing without relying
“simply on conclusory statements.” Ying Jing Gan, 996 F.2d at 532. The
Plaintiffs have failed to do so.
18
The Plaintiffs’ own evidence demonstrates that Phoenix Light’s and Blue
Heron’s collateral managers, who “executed the sales” of the Sold
Certificates, were located in Germany, London, California, or New York, not
the Cayman Islands or Ireland. PL-RSUF ¶ 41; see also id. ¶ 60.1.1 (“The key
personnel dedicated to managing the [Phoenix Light] asset portfolio were
located in New York”). This further undermines any argument for the
application of Irish or Cayman law under the center of gravity test.
19
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entity for choice of law analysis. See, e.g., Commerzbank AG,
457 F. Supp. 3d at 243 (rejecting a similar argument by
Commerzbank).
Alternatively, to the extent that a center of gravity
analysis can be conducted with the limited evidence presented by
the Plaintiffs, that evidence demonstrates that New York law
governed the Sold Certificates transactions because each Sold
Certificate was registered in the Depository Trust Company
(“DTC”) securities depository at the time of sale, which is
located in New York. PL-RSUF ¶ 41; CB-RSUF ¶ 44. 20 Commerzbank
AG, 457 F. Supp. 3d 233, is instructive. In that case, Judge
Pauley, applying Ohio choice of law principles, found that New
York law governed the sale of certain certificates, in part
because those certificates were registered with the DTC. Id. at
243. Judge Pauley explained that “the actual transactions did
not occur in London; they occurred in New York through DTC, a
clearing house. . . . The fact that DTC actually holds the
certificates and effectuates the transactions means that the
The parties in the Commerzbank Action do not specifically address in their
56.1 Statements whether the Sold Certificates in that action were registered
with the DTC. However, the trade tickets for the Commerzbank Sold Certificate
transactions do appear to indicate that DTC played at least some role in
those transactions. Additionally, at the oral argument on the present
motions, counsel for DB contended that the Commerzbank Sold Certificates were
registered with the DTC and counsel for Commerzbank did not contest that
representation. And in post–oral argument letters addressing supplemental
authority on this issue, Commerzbank again did not dispute DTC’s involvement
in the Commerzbank Sold Certificate transactions, and indeed conceded that
DTC played a “settlement function” with respect to the Sold Certificates. CB
ECF No. 290.
20
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transactions actually occurred in New York and are governed by
New York law.” Id. This reasoning is apposite here and lends
further support to the conclusion that New York law applies in
the absence of evidence regarding the location and identity of
the buyers of the Sold Certificates. Because there is no
evidence that the Plaintiffs explicitly retained claims related
to the Sold Certificates, application of New York law to the
Sold Certification transactions is fatal to the Plaintiffs’
standing as to the Sold Certificates. See id.; N.Y. Gen. Oblig.
Law § 13-107.
In sum, there is no evidence in the record that the
Plaintiffs have standing to pursue claims relating to the Sold
Certificates. DB is entitled to summary judgment dismissing all
claims relating to the Sold Certificates.
3. Unpossessed Certificates
DB argues that the Plaintiffs have failed to demonstrate
that the Plaintiffs ever held three Certificates and therefore
lack standing to assert claims based on those Certificates.
First, DB asserts that there is no evidence that Phoenix
Light ever held the IXIS 2007-HE1 M2 Certificate. Phoenix Light
contends that it acquired the IXIS 2007-HE1 M2 Certificate in
2009 from Harrier Finance Limited (“Harrier”). Phoenix Light
points to evidence including a trade ticket relating to the
purchase of the IXIS 2007-HE1 M2 Certificate by Harrier in 2007,
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Fitzgerald Ex. 44, and an “Assignment Agreement” from 2012 that
states that Harrier “sold, transferred and delivered” to Phoenix
Light over 100 specified securities (including the IXIS 2007-HE1
M2 Certificate) in 2009. See Fitzgerald Ex. 39. However, the
Assignment Agreement only purports to transfer litigation claims
relating to the securities, not the securities themselves, and
merely assumes that the transfer of the Certificates took place
in 2009. Part Two of DB’s Reply and Response to the Phoenix
Light Plaintiffs’ Counter-Statement of Undisputed Material Facts
(“PL-RSUF-2”) ¶ 973. Although a collateral manager maintained
ledgers of Phoenix Light’s securities assets, the Plaintiffs
have not provided any ledger referencing the IXIS 2007-HE1 M2
Certificate or any trade ticket or exercise notice referencing
that Certificate. Id. Moreover, despite Phoenix Light’s
representation in interrogatories that it acquired IXIS 2007-HE1
M2 Certificate in January 2007 and never sold it, that
Certificate does not appear in a Phoenix Light December 2010
asset report. See Biron PL-Exs. 22 (line 38 of Ex. A thereto),
86. Additionally, Phoenix Light has failed to submitted evidence
that Harrier retained any legal claims to transfer to Phoenix
Light at the time of the Assignment Agreement, even if Harrier
had acquired the IXIS 2007-HE1 M2 Certificate. Accordingly,
Phoenix Light has failed to establish that it has standing to
assert claims related to the IXIS 2007-HE1 M2 Certificate.
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Similarly, DB argues that there is no evidence that
Commerzbank ever held the FFML 2005-FF2 M2 and GSAMP 2005-HE4 M2
Certificates. Commerzbank asserts that it acquired the FFML
2005-FF2 M2 and GSAMP 2005-HE4 M2 Certificates through an
assignment agreement in connection with Commerzbank’s purchase
of 239 certificates from Barrington II, which included the
preexisting legal claims held by Barrington II for certificates
that it had already sold to third parties. Part Two of DB’s
Reply and Response to the Commerzbank’s Counter-Statement of
Undisputed Material Facts (“CB-RSUF-2”) ¶ 1307. However, the
assignment agreement on which Commerzbank relies does not
purport to assign the actual FFML 2005-FF2 M2 and GSAMP 2005-HE4
M2 Certificates. It only transfers the assets contained in its
Exhibit B to the assignment agreement and those Certificates are
not listed in that exhibit. Instead, the assignment agreement
only purports to assign “any and all litigation rights, causes
of action and claims arising out of, in connection with, and/or
relating to” such Certificates, as designated in Exhibit A.
Handlin Ex. 673 §§ 1, 2, Exs. A, B. Additionally, Commerzbank
previously stated in response to DB’s interrogatories that
Barrington II sold the FFML 2005-FF2 M2 and GSAMP 2005-HE4 M2
Certificates to unknown buyers in 2012 — prior to the 2013
assignment on which Commerzbank relies. CB-RSUF-2 ¶ 1307.
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Commerzbank has not provided information about the 2012
sale by Barrington II to unknown purchasers and has not
otherwise provided evidence to establish that Barrington II
retained any legal claims in connection with its prior ownership
of the FFML 2005-FF2 M2 and GSAMP 2005-HE4 M2 Certificates at
the time of the relevant assignment agreement. Accordingly,
Commerzbank has failed to establish its standing to assert
claims related to the FFML 2005-FF2 M2 and GSAMP 2005-HE4 M2
Certificates, or that it otherwise acquired claims from
Barrington II at the time of the 2013 assignment agreement.
Therefore, all claims asserted by Phoenix Light relating to
the IXIS 2007-HE1 M2 Certificate and all claims asserted by
Commerzbank relating to the FFML 2005-FF2 M2 and GSAMP 2005-HE4
M2 Certificates are dismissed.
4. Bond Issuer Consent
DB contends that Phoenix Light does not have standing to
assert claims for the two tranches of Certificates issued by the
IMM 2005-7 Trust, arguing that pursuant to the relevant GA for
that Trust, investors may not initiate litigation without the
written consent of the “Bond Issuer.” See Biron PL-Ex. 74. In
relevant part, the GA governing the IMM 2005-7 Certificates
provides that certificateholders may not “institute any
Proceeding, judicial or otherwise, with respect to this
Indenture, . . . unless . . . such [certificateholders] have the
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written consent of the Bond Issuer or a Bond Issuer Default
exists.” Id.
The Plaintiffs do not dispute that this consent provision
appears in the relevant GA or that the Plaintiffs failed to
receive written consent from Ambac Assurance Corporation
(“Ambac”), the Bond Issuer, prior to commencement of this
action. PL-RSUF ¶ 44; PL-RSUF-2 ¶ 976. However, after oral
argument on the current motions, the Plaintiffs submitted the
Declaration of Susan J. Lobel, Managing Director and General
Counsel of Structured Finance at Ambac. 21 Ms. Lobel declared that
Ambac “ratifies and authorizes Plaintiffs’ actions, and consents
to Plaintiffs asserting claims, as to the IMM 2005-7
Certificates against Defendants” in this case. Lobel Decl. ¶ 4.
The Plaintiffs argue that Ms. Lobel’s declaration alleviates
any standing issues with respect to the relevant claims. The
Plaintiffs further argue that these newly viable claims are
timely because they relate back to Phoenix Light’s earlier
complaints. DB contends that because Phoenix Light did not
The Plaintiffs also moved for leave to supplement the summary judgment
record with the Lobel Declaration. Courts in this Circuit look favorably on
efforts to supplement the record absent prejudice or bad faith. Katz v.
Metro. Transp. Auth., No. 17-cv-472, 2017 WL 6734185, at *12 (E.D.N.Y. Dec.
29, 2017) (collecting cases). There is no evidence that the Plaintiffs
submitted the Lobel Declaration in bad faith or that supplementing the record
would prejudice DB. Moreover, the parties will be best served by the Court
deciding the issues presented to it on the most complete factual basis
possible. Accordingly, the Court grants the Plaintiffs’ motion and accepts
the Lobel declaration into the summary judgment record.
21
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receive consent from Ambac — a condition precedent to Phoenix
Light’s ability and standing to pursue these claims — until
August 2021, any claims relating to the IMM 2005-7 Certificates
cannot relate back and are time-barred.
Under New York law, “[r]elation-back applies to the amendment
of claims and parties and is dependent upon the existence of a
valid preexisting action.” Nomura Asset Acceptance Corp. Alt.
Loan Tr., Series 2005-S4 v. Nomura Credit & Cap., Inc., No.
653541/2011, 2013 WL 2072817, at *7 (N.Y. Sup. Ct. May 10, 2013)
(quoting S. Wine & Spirits of Am., Inc. v. Impact Envt’l Eng’g,
PLLC, 915 N.Y.S.2d 541, 542 (App. Div. 2011)). Where a
contractual condition precedent to asserting a claim is
satisfied only after that claim has been asserted, the
subsequent satisfaction of the condition precedent “cannot
‘relate back’ because the inherent nature of a condition
precedent to bringing suit is that it actually precedes the
action.” U.S. Bank Nat’l Ass’n v. GreenPoint Mortg. Funding,
Inc., 45 N.Y.S.3d 11, 17 (App. Div. 2016) (explaining that
permitting relation back in such circumstances would “simply
eviscerate the condition precedent”); S. Wine & Spirits,
915 N.Y.S.2d at 541 (“Here, however, the original complaint was
brought by plaintiffs in violation of the condition precedent,
and the plaintiffs cannot rely upon [the New York relation back
statute] to cure such failure to comply.”).
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Although the Plaintiffs’ claims arising from the IMM 2005-7
Certificates were first asserted in earlier complaints, the
Plaintiffs did not have standing to assert these claims until
the condition precedent was satisfied in August 2021. These
claims, as initially asserted, were not valid causes of action
because the condition precedent was not yet satisfied.
Accordingly, there is nothing that the newly consented-to claims
can properly relate back to. Because relation back is foreclosed
under New York law and there is no dispute that the relevant
claims accrued years ago, all claims arising out of the IMM
2005-7 Certificates are time-barred. 22 See infra Section III.B.
B. Statute of Limitations
DB argues that the majority of the Plaintiffs’ claims are
time-barred because those claims accrued in Germany and are
untimely under the applicable German three-year statute of
limitations. The parties agree, and the Court previously found,
that most of Commerzbank’s claims are subject to the German
statute of limitations. CB MTD Order, 234 F. Supp. 3d at 468-71.
The Plaintiffs’ invocation of Davis v. Scottish Re Group Ltd., No.
654027/2013, 2019 N.Y. Misc. LEXIS 1820 (N.Y. Sup. Ct. Apr. 10, 2019), is
without merit. The Plaintiffs cite Davis to argue that relation back is
foreclosed in these circumstances only if the plaintiff initially lacked
standing for every claim asserted in its complaint. To the extent that Davis
applied such a rule, it appears to conflict with the Appellate Division’s
decision in U.S. Bank, which foreclosed relation back of certain contract
claims even though the plaintiffs’ complaint was not entirely dismissed. 45
N.Y.S.3d at 18. In this case, only the claims relating to two tranches of
Certificates from one Trust are barred because it is only those certificates
which are alleged to have required Ambac’s consent prior to suit and which
Phoenix Light failed to obtain.
22
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The parties dispute which statute of limitations applies to the
claims arising out of 29 Certificates held by Phoenix Light. 23
The Plaintiffs also argue that regardless of what statute of
limitations period applies, their claims are still timely.
1. Statute of Limitations Applicable
to Phoenix Light’s Claims
“When a nonresident sues on a cause of action accruing outside
New York, [N.Y. C.P.L.R.] § 202 requires the cause of action to
be timely under the limitation periods of both New York and the
jurisdiction where the cause of action accrued.” Global Fin.
Corp. v. Triarc Corp., 715 N.E.2d 482, 484 (N.Y. 1999). When a
cause of action has been assigned, the question of where and
when the cause of action accrued focuses on the original
assignor. See Portfolio Recovery Assocs., LLC v. King, 927
N.E.2d 1059, 1061 (N.Y. 2010).
In general, absent unusual circumstances, when the injury
of a nonresident plaintiff is purely economic, the cause of
action accrues where the plaintiff resides and sustains the
economic impact of the loss, see Glob. Fin., 715 N.E.2d at 485,
rather than where the defendant committed the wrongful act. See
Gordon & Co. v. Ross, 63 F. Supp. 2d 405, 408 (S.D.N.Y. 1999).
“If the injured party is a corporation, then the place of
DB does not contend that claims asserted by any other Phoenix Light
Plaintiff accrued in Germany or otherwise argue that they are untimely under
the German statute of limitations.
23
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residence for the purposes of [N.Y. C.P.L.R. § 202] is
traditionally the state of incorporation or the corporation’s
principal place of business.” HSN Nordbank AG v. RBS Holdings
USA Inc., No. 13-cv-3303, 2015 WL 1307189, at *5 (S.D.N.Y. Mar.
23, 2015). When an injury accrues to a trustee, courts applying
New York law look to the jurisdiction of the trust
beneficiaries, or, if the trust beneficiaries are too
geographically scattered to provide a workable basis to
determine a location, to the trust itself. See, e.g., Deutsche
Bank Nat’l Tr. Co. v. Barclays Bank PLC, 140 N.E.3d 511, 518
(N.Y. 2019). Ultimately, “the thrust of the inquiry is who
became poorer, and where did they become poorer as a result” of
the challenged conduct. HSN Nordbank AG, 2015 WL 1307189, at *5.
As discussed above, Phoenix Light is a special purpose
vehicle, formed by WestLB to facilitate a transaction designed
to spin off WestLB’s distressed assets. At the closing of
relevant structured finance transactions, WestLB transferred
assets to Phoenix Light, which simultaneously transferred
Certificates to an indenture trustee that held the Certificates
“for the benefit of” WestLB and its risk shield Guarantors (and,
subsequently, EAA) – all Germany entities. PL-RSUF ¶¶ 38, 51-57.
The transfer to the indenture trustee granted the indenture
trustee “all of [Phoenix Light’s] right, title and interest in
and to [the assets, including the Certificates] whether now
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owned or existing or hereafter arising or acquired.” Biron PLEx. 96 § 2.1 (agreement governing the Phoenix Light
securitization transaction); PL-RSUF ¶ 38.
Courts in this Circuit interpreting identical and
substantially similar granting clauses have found that such
clauses effect a true and complete transfer of rights and claims
to the indenture trustee. See PL v. U.S. Bank III, 2021 WL
4515256, at *2; 24 see also Triaxx Prime CDO 2006-1, Ltd. v. Bank
of N.Y. Mellon, No. 16-cv-1597, 2017 WL 1103033, at *3 (S.D.N.Y.
Mar. 21, 2017). Because the indenture trustee held the assets
for the benefit of known and easily identifiable beneficiaries
when the claims accrued with respect to the relevant
Certificates, it was the trust’s beneficiaries (the Phoenix
Light noteholders and risk shield guarantors) who were injured.
Accordingly, Phoenix Light’s claims arising out of its 29
Certificates (see Biron PL-Ex. 73) accrued in Germany and are
governed by the German statute of limitations.
The German statute of limitations applies because Phoenix
Light’s claims are based upon alleged breaches of contractual
obligations and other duties that were owed to the indenture
In PL v. U.S. Bank III, the court of appeals found that Phoenix Light’s
grant of its interests to the indenture trustee constituted a “complete
transfer” and “conveyed in toto all interest” that Phoenix Light had in the
certificates. PL v. U.S. Bank III, 2021 WL 4515256, at *2. Accordingly,
Phoenix Light is also collaterally estopped from relitigating this issue. See
supra Section II.A.1.a.
24
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trustee at the time of the alleged breaches, for the benefit of
the WestLB, its guarantors, and EAA. In these circumstances,
Phoenix Light, to the extent that it can assert claims at all,
can do so only as the assignee of rights conveyed to it by the
indenture trustee and the trust’s beneficiaries. Accordingly,
Phoenix Light cannot “stand in a better position than that of”
the indenture trustee and trust beneficiaries for purposes of
statute of limitations. See Portfolio Recovery Assocs.,
LLC v King, 927 N.E.2d 1059 (N.Y. 2010).
For these same reasons, Phoenix Light’s arguments based on
Judge Sullivan’s decision in House of Europe Funding I, Ltd. v.
Wells Fargo Bank, N.A., No. 13-cv-519, 2014 WL 1383703 (S.D.N.Y.
Mar. 31, 2014), are without merit. Phoenix Light argues that the
House of Europe stands for the proposition that Phoenix Light’s
place of incorporation must be the location where its claims
accrued. See id. at *15 (rejecting the argument that the
plaintiff corporation’s injury accrued where its investors
resided). But in House of Europe, Judge Sullivan recognized that
where a plaintiff assigns its rights through a granting clause
(as Phoenix Light did), that plaintiff is not a real party in
interest to any claims that arise from those rights when those
claims accrue. Id. at *15-16. Because Phoenix Light’s claims are
based on alleged injuries caused while the indenture trustee,
WestLB, its guarantors, and EAA were the real parties in
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interest to the relevant claims, those claims accrued to those
entities in Germany, not to Phoenix Light. See id.; see also
Triaxx Prime, 2017 WL 1103033, at *5.
Because Phoenix Light’s claims accrued in Germany, to be
timely under N.Y. C.P.L.R. § 202, Phoenix Light’s claims must be
timely under both New York and German law.
2. German Statute of Limitations
The parties agree that Section 195 of the German Civil Code
provides the relevant statute of limitations for the Plaintiffs’
claims. Section 195 establishes a three-year limitations period
that “begins to run at the end of the calendar year in which 1)
the claim arose and 2) the plaintiff either has knowledge of the
circumstances giving rise to the claim and the identity of the
defendant, or would have had such knowledge but for gross
negligence.” IKB Deutsche Industriebank AG v. McGraw Hill Fin.,
Inc., 634 F. App’x 19, 22 (2d Cir. 2015); Commerzbank AG, 457 F.
Supp. 3d at 246; see also Rohe PL Decl. ¶¶ 9-21. 25
A “plaintiff has knowledge of the circumstances giving rise
to the claim when [the plaintiff] obtains knowledge of the facts
The parties have submitted dueling expert reports — from Doctor Heinz–Peter
Mansel on behalf the Plaintiffs, and Doctor Mathias Rohe on behalf of DB,
respectively — regarding the application of German law to this case. Pursuant
to Federal Rules of Civil Procedure 44.1, questions of foreign law are
treated as questions of law and the Court “may consider any relevant material
or source, including testimony, whether or not submitted by a party or
admissible under the Federal Rules of Evidence.” Fed. R. Civ. P. 44.1; CB MTD
Order, 234 F. Supp. 3d at 472.
25
50
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necessary to commence an action in Germany with an expectation
of success or some prospect of success, though not without risk
and even if the prospects of success are uncertain.” IKB, 634 F.
App’x at 22. “To satisfy this standard, a plaintiff need not
know all the relevant details or have conclusive proof
available; knowledge of the factual circumstances underlying the
claim is sufficient.” CB MTD Order, 234 F. Supp. 3d at 472; see
also IKB, 634 F. App’x at 22.
Further, as DB’s German law expert, Dr. Rohe, persuasively
opined, German law imposes an affirmative “duty to investigate”
on a potential plaintiff that arises when (1) the plaintiff is
presented with evidence that suggests a particular claim against
a particular defendant; (2) there is a readily available means
of gaining further knowledge of the claim; and (3) the
investigation would yield sufficient information necessary to
state the claim and could be conducted without disproportionate
expense. Rohe PL Decl. ¶¶ 45-46. Dr. Rohe opined that the German
Federal Supreme Court has “held repeatedly that commercial
actors who are engaged in the business of investing are
obligated to review respected business publications.” Id. ¶ 45;
see also Commerzbank AG, 457 F. Supp. 3d at 248
(“[S]ophisticated investors are charged with a heightened duty
to investigate possible claims under German law” (quoting In re
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Countrywide Fin. Corp. Mortg.-Backed Sec. Litig., No. 11-ml2265, 2014 WL 4162382, at *7 (C.D. Cal. June 18, 2014))).
DB contends that under this standard, certain of the
Plaintiffs’ claims are time-barred and should be dismissed.
a. Relation Back of Commerzbank’s Claims
DB argues that all of Commerzbank’s claims relating to the
10 “Commerzbank Certificates” are time-barred under German law.
See Kraut Ex. A; Biron CB-Ex. 69. DB also seeks summary judgment
dismissing all of Commerzbank’s claims relating to the 20
“Palmer-3 Certificates” that accrued after they were transferred
to Dresdner/Commerzbank, and summary judgment dismissing all
claims relating to the 22 “Eurohypo Certificates” other than
post-EOD claims arising from the 2014 Downgrade EOD relating to
the MSAC 2005-HE7 B1 and MSHEL 2005-4 B1 Certificates. 26 Id.
DB concedes that Commerzbank’s claims relating to the Palmer 3 Certificates
that accrued before their transfer to Commerzbank did not accrue in Germany
and are not subject to the German statute of limitations. CB MSJ at 16. It is
unclear what DB’s position is with respect to the Barrington II Certificates.
DB incorrectly contends that the Court determined in the CB MTD Order that
claims arising out of the Barrington II Certificates that accrued after their
transfer to Commerzbank are subject to the German statute of limitations. Id.
The Court did not discuss the Barrington II Certificates in the CB MTD Order
and made no such finding. See generally CB MTD Order, 234 F. Supp. 3d at 46871. Moreover, in its opening brief, DB argued that claims relating to the
Barrington II Certificates that accrued after their transfer to Commerzbank
are time-barred under German law, CB MSJ at 24, but in the argument summary
chart that DB submitted with its reply brief, DB appears to have abandoned
that argument. Kraut Ex. A at A-2. In a letter to the Court after oral
argument, DB reaffirmed that DB set forth its statute of limitations
arguments in the argument summary chart. CB ECF No. 275. In any event, even
if post-transfer claims relating to the Barrington II Certificates were
subject to the German statute of limitations, those claims would be timely
under German law. Claims arising out of these Certificates were first
asserted in Commerzbank’s original complaint in 2015 and so would be untimely
under German law only if Commerzbank had sufficient knowledge of these claims
before January 1, 2012. Because all Barrington II Certificates were
26
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Whether Commerzbank’s claims are time-barred depends in
part on the applicable filing dates for its claims. There is no
dispute that in Commerzbank’s original complaint (filed December
23, 2015) and the CB FAC (filed April 15, 2016), Commerzbank
advanced (1) claims that DB failed to investigate and seek to
cure breaches of R&Ws by RMBS sponsors and originators; and (2)
claims based on incomplete mortgage files, servicer robosigning, and real estate foreclosure issues. There is also no
dispute that these claims are time-barred if Commerzbank had the
requisite knowledge of these claims by January 1, 2012 (the
start of the third calendar year before the original complaint
was filed).
In the November 2017 CB SAC, Commerzbank included
additional claims based on allegations that DB breached its
post-EOD “prudent person” duties arising from the Loss EODs, the
2012 Downgrade EODs, and the 2014 Downgrade EOD (collectively,
the “Declared EODs”). The parties dispute whether these claims
relate back to Commerzbank’s original complaint and therefore
what the applicable filing date for these claims should be.
Commerzbank argues that claims relating to the Declared
EODs arise “out of the same conduct, transaction, or occurrence
set out — or attempted to be set out — in the” original
transferred to Commerzbank after January 1, 2012, none of the post-transfer
claims can be time-barred under German law. See Biron CB-Ex. 69.
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complaint. See Fed. R. Civ. P. 15(c)(1)(B). But the allegations
in the CB TAC relating to the Declared EODs are factually
distinct from the transactions and occurrences discussed in the
earlier complaints, which did not mention or reference any
Declared EOD or DB’s alleged failure to act prudently following
a Declared EOD. See, e.g., Rochester v. Sixth Precinct Police
Station, 370 F. App’x 244, 246 (2d Cir. 2010) (“[E]ven where an
amended complaint tracks the legal theory of the first
complaint, claims that are based on an entirely distinct set of
factual allegations will not relate back.”); Espinosa v. The
Delgado Travel Agency, Inc., No. 05-cv-6917, 2006 WL 2792689, at
*3 (S.D.N.Y. Sept. 27, 2006) (no relation back where “new
factual allegations focus on events, dates, and people that were
never mentioned in the original complaint”). Accordingly, claims
relating to the Declared EODs do not relate back to the earlier
complaints and are time-barred under German law if Commerzbank
had the requisite knowledge of these claims by January 1, 2014
(the start of the third calendar year before the CB SAC was
filed).
b. Relation Back of Phoenix Light’s Claims
DB seeks summary judgment dismissing all claims relating to
the 29 Phoenix Light Certificates as time-barred, except for
post-EOD claims arising from the 2014 Downgrade EOD relating to
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the SABR 2007-NC2 M2 and A2B Certificates. See Kraut Ex. A;
Biron PL-Ex. 73.
As with Commerzbank, the parties dispute the applicable
filing date of certain of Phoenix Light’s claims. There is no
dispute that the Phoenix Light Plaintiffs filed four complaints
in this action: (1) the original complaint asserting claims
relating to 35 Certificates (filed December 23, 2014); (2) the
PL FAC, adding claims relating to 52 additional Certificates
issued by different Trusts and governed by different GAs than
the Certificates in the original complaint (filed April 10,
2015); (3) the PL SAC, asserting, for the first time, standing
based on assignments from the indenture trustee (filed July 15,
2015); and (4) the PL TAC, asserting new claims arising from
alleged breaches relating to the Declared EODs (filed September
28, 2017).
Phoenix Light does not dispute that the claims related to
the 52 additional Certificates first advanced in the PL FAC do
not relate back to the original complaint. However, like
Commerzbank, Phoenix Light argues that claims related to the
Declared EODs (other than the 2014 Downgrade EOD) relate back to
its earlier pleadings. However, Phoenix Light did not discuss
the Declared EODs or DB’s conduct following any Declared EOD in
its original complaints. Phoenix Light’s argument therefore
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fails for the same reasons that Commerzbank’s parallel argument
failed.
Accordingly, claims advanced in the original complaint and
the PL FAC are time barred if Phoenix Light had the requisite
knowledge of these claims by January 1, 2011, and January 1,
2012, respectively. Claims related to the Declared EODs are
untimely under German law if Phoenix Light had the requisite
knowledge of those claims by January 1, 2014.
c. Application of German Statute of Limitations
DB argues that the Plaintiffs had knowledge of their claims
by 2011 and 2012, which triggered the German statute of
limitations period and renders many of the Plaintiffs’ claims
untimely. The Plaintiffs contend that dismissal on this basis is
inappropriate because there are genuine disputes of material
fact relating to when the Plaintiffs had sufficient knowledge of
their claims and therefore when the German statute of
limitations started to run. DB’s arguments prevail for several
reasons.
First, there is no genuine dispute of material fact that
the Plaintiffs, before the relevant limitations periods, knew of
allegations of misconduct by warrantors and knew that DB had not
declared any EODs relating to R&W breaches or pursued the
repurchase remedies provided for in the GAs. See, e.g., PL-RSUF
¶¶ 62.2, 66; CB-RSUF ¶¶ 50.2, 56; see also Biron PL-Exs. 138-40;
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Biron CB-Ex. 78. The evidence in the record establishes that the
Plaintiffs received monthly remittance reports showing that few,
if any, loans had been put back to warrantors. By 2010 and 2011,
the Plaintiffs had become sufficiently concerned about possible
R&W breaches that they sought to coalesce support among other
investors to direct DB to take action. See, e.g., PL-RSUF
¶¶ 66.7-14; CB-RSUF ¶¶ 56.16-19; Biron CB-Exs. 58-60; Biron PLExs. 58-60.
The record is also clear that Commerzbank was aware of the
likelihood of significant declines in the market value of
certain Certificates based on the analyses of internal and
third-party valuation specialists. Commerzbank had marked the
value of at least 34 Certificates as “fully written off” or $0
by January 1, 2012. See CB-RSUF ¶¶ 49-50; Biron CB-Ex. 84. And
by 2011, Commerzbank was in communication with legal counsel and
other RMBS certificateholders to develop an understanding of
their options to pursue legal actions relating to alleged R&Ws
breaches relating to underlying mortgages. CB-RSUF ¶¶ 56.17-19.
Further, Commerzbank alleged in its SAC that when it began to
sell the Sold Certificates in November 2011, DB’s alleged
breaches, including its failure to cause “the sponsors or
originators to substitute or repurchase” loans with R&W
breaches, “significantly reduced the sales price Commerzbank
ultimately received when it divested itself of the certificates”
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because “it was apparent that [DB] had breached its duties and
would not take steps to remedy its failures.” CB SAC ¶¶ 167-68.
Consistent with this evidence and Commerzbank’s allegations,
when the New York State Supreme Court dismissed Commerzbank’s
prior action relating to 51 of the 74 Certificates at issue in
this case, the court specifically stated that “the plaintiffs
could with reasonable diligence have discovered [fraud relating
to the certificates] prior to 2011,” in no small part because,
as Commerzbank admitted in that case, “forensic loan level
analysis was available [for the loans underlying the
certificates at issue] in 2010 and 2011.” Commerzbank AG London
Branch v. UBS AG, No. 654464/2013, 2015 WL 3857321, at *2–3
(N.Y. Sup. Ct. June 17, 2015); CB-RSUF ¶¶ 46-47.
Second, the record clearly establishes that prior to 2011,
the Plaintiffs had sufficient knowledge of their claims relating
to DB’s alleged failure to follow up on incomplete or defective
mortgage files or servicer failures and to provide notice to
other transaction parties of EODs. It is undisputed that DB
publicly disseminated allegations of servicer robo-signing and
real estate owned (“REO”) property and foreclosure issues, and
that DB reminded certificateholders of their power to direct DB
to take action, including in letters from October 2010. PL-RSUF
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¶ 67.5; CB-RSUF ¶ 57.5. 27 It is also clear that the Plaintiffs
were aware that DB did not declare EODs based on such servicer
issues. PL-RSUF ¶ 68; CB-RSUF ¶ 57. For example, Commerzbank
joined with a group of investors in requesting that DB take
steps to remedy failures by a specific servicer. A letter to DB
dated January 31, 2012 from Gibbs & Brunns on behalf of
Commerzbank and a group of other investors noted specific and
ongoing issues with servicers and mentioned that the group had
informed a servicer in October 2011 that the group believed the
servicer “had failed to meet its ongoing duties as Servicer
and/or Master Servicer.” Biron CB-Ex. 102 at 2; see also Biron
CB-Ex. 120 at 54-58. All this evidence demonstrates that the
Plaintiffs had sufficient knowledge to trigger the German
statute of limitations period with respect to these alleged
breaches.
Finally, with respect to the Plaintiffs’ claims that DB
breached its “prudent person” duties following certain Declared
EODs, there can be no genuine dispute that the Plaintiffs had
sufficient knowledge of any purported breaches prior to 2014.
The parties do not appear to dispute that DB had declared EODs
for the Loss EODs and 2012 Downgrade EODs. Further, it appears
Allegations of servicer misconduct had already been the topic of public
news reports, high profile government investigations, and lawsuits before
2012. CB SAC ¶ 133; CB-RSUF ¶ 57.6; Biron CB-Ex. 63.
27
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undisputed that DB did not take action other than sending
notices to the relevant certificateholders to inform them of the
EODs. Indeed, the crux of the Plaintiffs’ claims related to the
Declared EODs is that DB failed to do anything after they
declared these EODs and failed to pursue remedies in a manner
consistent with that of a “prudent person.” However, given that
the Plaintiffs received notice from DB of the Loss EODs in 2010
and the Downgrade EODs in 2012, the Plaintiffs clearly had
sufficient knowledge — or were grossly negligent in failing to
acquire knowledge — of the fact that despite the declared EOD,
DB was not taking the steps that the Plaintiffs would have
preferred DB to take. Accordingly, any claim based on the Loss
EODs and the 2012 Downgrade EODs are time-barred under German
law.
The Plaintiffs contend that DB’s statute of limitations
arguments fail because DB failed to show that the Plaintiffs had
trust-by-trust and loan-by-loan knowledge. However, this
argument confuses the Plaintiffs’ burden at summary judgment or
trial with the level of knowledge sufficient to commence the
German statute of limitations period and is unsupported by
federal court precedent applying Germany’s statute of
limitations. See Commerzbank AG, 457 F. Supp. 3d at 247
(rejecting identical argument from Commerzbank); IKB, 634 F.
App’x at 22 (“[A] plaintiff need not know all the relevant
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details or have conclusive proof available” to trigger the
German statute of limitations, rather, “knowledge of the factual
circumstances underlying the claim is sufficient.”). Moreover,
German law contemplates that plaintiffs, particularly those as
sophisticated as the Plaintiffs in this case, exercise
reasonable care in investigating potential claims. Rohe PL Decl.
¶¶ 45-46; Rohe CB Decl. ¶¶ 39-42; see also Deutsche ZentralGenossenchaftsbank AG v. HSC N. Am. Holdings, Inc., No. 12-cv4025, 2013 WL 6667601, at *8 (S.D.N.Y. Dec. 17, 2013) (rejecting
Dr. Mansel’s testimony to the contrary and concluding that
“under German law, sophisticated plaintiffs have a heightened
duty to investigate possible claims.”). 28 Despite this duty to
investigate, the Plaintiffs did not contact DB to ask what
action, if any, it was taking with respect to alleged breaches,
misconduct, and defective loan files. See, e.g., Rohe PL Decl.
¶ 54; Rohe CB Decl. ¶ 48. Further, although the Plaintiffs had
discovery mechanisms available to them had they pursued German
litigation, they failed to take advantage of any of them. Rohe
PL Reply Decl. ¶¶ 24-27; see also 28 U.S.C. § 1782. In any
event, Commerzbank conceded in an earlier action that relevant
Based on the available news coverage in the United States and Germany, Dr.
Rohe opined that a German court would conclude that by December 31, 2011, the
Phoenix Light Plaintiffs were grossly negligent in failing to acquire
knowledge sufficient to bring their claims. Rohe PL Decl. ¶¶ 49-59.
Similarly, Dr. Rohe opined that Commerzbank either had knowledge or was
grossly negligent in failing to acquire knowledge sufficient to bring claims
by the end of 2012. Rohe CB Decl. ¶¶ 43-48.
28
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“forensic loan level analysis was available in 2010 and 2011.”
Commerzbank AG London Branch, 2015 WL 3857321, at *3.
Additionally, any argument that the Plaintiffs were aware
of sponsor, originator, or servicer breaches, but not breaches
by DB as the trustee, is unpersuasive. The logical inference to
be drawn from the Plaintiffs’ observed issues with sponsors,
originators, and servicers, the monthly remittance reports, the
few notices of EOD received from DB, and the lack of reported
steps to remediate such issues is, or should have been, clear.
As Judge Pauley found relating to similar claims brought by
Commerzbank, in light of known facts relating to servicer
failures, “Commerzbank logically should have targeted actions
against the Trustee . . . it is hard to fathom how — but for
gross negligence — [the Plaintiffs] did not learn of facts
sufficient to bring their claim.” Commerzbank AG, 457 F. Supp.
3d at 248. If the Plaintiffs were aware of the alleged breaches
of R&Ws and following the monthly reports, then the Plaintiffs
were aware — or were grossly negligent in not knowing — that DB
was not pursuing such breaches. Similarly, once the Plaintiffs
were aware of servicer issues and the fact that DB was not
taking action after declaring EODs, the Plaintiffs had knowledge
of facts sufficient to bring their claims.
Finally, the Plaintiffs’ argument that additional or
successive breaches restarted the statute of limitations clock
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under German law is unpersuasive. It is clear that German law
applies the principal of “unity of damages,” pursuant to which
ongoing breaches do not restart or toll the Plaintiffs’ statute
of limitations period. See, e.g., Rohe Pl-Decl. ¶¶ 22-28;
Commerzbank AG v. U.S. Bank Nat’l Ass’n, No. 16-cv-4569, 2021 WL
603045, at *5 (S.D.N.Y. Feb. 16, 2021) (rejecting Commerzbank’s
argument that under German law, “each successive breach should
restart the statute of limitations.”).
Accordingly, all of Phoenix Light’s claims related to the
29 Phoenix Certificates listed in Biron PL-Ex. 73 are timebarred, except post-EOD claims arising from the 2014 Downgrade
EOD that affected SABR 2007-NC2 M2 and A2B. Similarly, all of
Commerzbank’s claims relating to the 10 Commerzbank Certificates
identified in Biron CB-Ex. 69 and the 20 Palmer-3 Certificates
(for claims after the merger of Dresner and Commerzbank)
identified in Biron CB-Ex. 69 are dismissed. In addition, all
Commerzbank claims relating to the 22 Eurohypo Certificates
identified in Biron CB-Ex. 69 are time-barred, except for postEOD claims relating to the 2014 Downgrade EOD affecting MSAC
2005-HE7 B1 and MSHEL 2005-4 B1.
3. New York Statute of Limitations
DB also argues that certain of the Plaintiffs’ claims are
untimely under the New York statute of limitations. DB’s New
York statute of limitations arguments concern three categories
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of claims: (1) claims that DB breached its “prudent person”
duties following the Loss EODs for 19 trusts (Biron PL-Ex. 29
(listing the 11 relevant Phoenix Light Plaintiffs trusts); Biron
CB-Ex. 29 (listing the eight relevant Commerzbank trusts)); (2)
claims that DB breached duties relating to alleged R&W breaches
in certain loans (Reyes PL-Ex. I (listing relevant Phoenix Light
Plaintiffs loans); Reyes CB-Ex. I (listing relevant Commerzbank
loans)); and (3) claims relating to the 20 Palmer-3 Certificates
that accrued before those Certificates were transferred to
Dresdner/Commerzbank in 2008 (Biron CB-Ex. 69 (listing the
Palmer-3 Certificates)). Under New York law, the longest statute
of limitations governing the Plaintiffs’ claims is six years.
See N.Y. C.P.L.R. §§ 214(4), 213(2) (breach of contract and tort
statute of limitations); IDT Corp. v. Morgan Stanley Dean Witter
& Co., 907 N.E.2d 268, 273 (N.Y. 2009) (breach of fiduciary duty
statute of limitations); Cruden v. Bank of N.Y., 957 F.2d 961,
967 (2d Cir. 1992) (TIA statute of limitations).
a. Loss EOD Claims
There is no genuine dispute that DB notified investors of the
Loss EODs relating to 11 Phoenix Light Plaintiffs trusts (“PL
Loss EOD Trusts”) between March 2009 and March 2011 and of the
Loss EODs in the eight Commerzbank trusts (“CB Loss EOD Trusts”)
between August 2008 and September 2010. PL-RSUF ¶ 78; CB-RSUF ¶
58.
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As discussed above, claims relating to the Loss EODs were
first raised in 2017 in the CB SAC and PL TAC and do not relate
back to any earlier pleading. DB argues that Loss EOD claims
related to the PL and CB Loss EOD Trusts accrued more than six
years before the CB SAC and PL TAC were filed and are therefore
untimely under New York law.
Under New York law, the limitations period on a claim for
breach of contract begins to run when the cause of action
accrues. A cause of action for breach of contract ordinarily
accrues and the limitations period begins when breach occurs,
regardless of whether the plaintiff has knowledge of the breach.
Guilbert v. Gardner, 480 F.3d 140, 149 (2d Cir. 2007); Hahn
Auto. Warehouse, Inc. v. Am. Zurich Ins. Co., 967 N.E.2d 1187,
1190 (N.Y. 2012) (claim for breach of contract accrues “when all
of the facts necessary to the cause of action have occurred so
that the party would be entitled to obtain relief in court”).
However, if “a contract requires continuing performance over a
period of time, each successive breach may begin the statute of
limitations running anew.” Guilbert, 480 F.3d at 150. “Under New
York law the continuing breach exception is narrow, restricted
to continuing wrongs, not a single wrong that has continuing
effects.” BlackRock Balanced Cap. Portfolio (FI), 2018 WL
5619957, at *12.
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With respect to the PL Loss EOD Trusts, DB argues that any
alleged breach accrued before September 2011 (six years before
the PL TAC was filed). DB relies on notices that it circulated
to investors between March 2009 and March 2011 in which DB
apprised investors of the Loss EODs. PL-RSUF ¶ 78. While the
exact language varies across the notices, in substance each
notice advised recipients of the fact that under the relevant
GA, a majority bloc of investors has the power to direct DB to
terminate servicers or take other remedial actions:
We call your attention to Section [sic] Article VII of
the Agreement, which provides that if the Servicer Event
of Default then [sic], and in each and every case, so
long as such Servicer Event of Default shall not have
been remedied, the Trustee shall at the direction of the
Holders of each Class of Regular Certificates evidencing
Percentage Interests aggregating not less than 51 % by
notice then given in writing to the Servicer and to the
Trustee if given by Holders of certificates, shall
terminate all of the rights and obligations of the
Servicer as servicer under the Agreement.
See, e.g., Biron PL-Ex. 111. Some but not all of the notices
also included a reservation of rights and a recommendation that
investors consult with their financial, tax, and/or legal
advisors in connection with the Loss EODs. 29
See, e.g., Biron PL-Ex. 111 (“The Trustee expressly reserves any and all
rights and remedies which it may now or hereafter be entitled to exercise in
connection with the Certificates or the Agreement. The Trustee makes no
recommendations and gives no investment, legal or tax advice to Holders. EACH
HOLDER IS STRONGLY ADVISED TO CONSULT WITH ITS OWN FINANCIAL, TAX AND/OR
LEGAL ADVISORS REGARDING THESE MATTERS.”).
29
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DB argues that the notices apprised investors that DB would
not take further action with respect to the Loss EODs without
investor direction. Therefore, according to DB, any post-EOD
failure to act as a prudent person or take any action other than
simply wait for investor direction accrued when the notices were
circulated.
The Plaintiffs argue that the exact time when DB failed to
act prudently post-EOD, and therefore when the breaches accrued,
cannot be resolved on summary judgment. The Plaintiffs also
argue that because prudence post-EOD is a continuing duty and
that under New York law, DB’s successive breaches repeatedly
restarted the statute of limitations clock.
On this record, there is no genuine dispute of fact that
any alleged breach by DB occurred and accrued when the notices
were circulated between 2009 and 2011. The notices apprised
investors of the Loss EODs and reminded recipients that
investors could direct DB to terminate the servicers or take
other actions. Conspicuously absent from the notices was any
indication that DB intended to take any further action absent
investor direction. The Plaintiffs’ own mortgage-backed
securities expert opined that the “notices merely stated that
[DB] would terminate the servicer or take any other unspecified
actions, if directed to do so. Such a statement is tantamount to
disclaiming [DB’s] duty to act as a prudent person.” Fitzgerald
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Ex. 236 ¶ 189 (emphasis added). Moreover, to the extent that
recipients were left wondering what, if anything, DB was going
to do following the Loss EODs, they could have contacted DB and
asked using the contact information provided in the notices.
E.g., Biron PL-Ex. 111 (recipients could contact “[phone number]
or [email address] with any questions you may have regarding
this notice.”).
Moreover, the Plaintiffs’ argument that DB’s failure to act
following the Loss EODs constituted repeated, successive
breaches is without merit. New York contract law distinguishes
between “a single wrong that has continuing effects and a series
of independent, distinct wrongs,” and allows an exception to the
typical accrual rules only in the latter case. See Maloul v. New
Columbia Res., Inc., No. 15-cv-8710, 2017 WL 2992202, at *5
(S.D.N.Y. July 13, 2017). Here, DB’s decision to take no action
absent investor direction is single, discrete decision, and any
alleged harm sustained by the Plaintiffs was caused by that
decision. See BlackRock Balanced Cap. Portfolio, 2018 WL
5619957, at *12 (observing that a similar argument regarding
alleged continuous breaches by the same defendants was “unlikely
to succeed” under New York’s “narrow” continuing breach
exception). To hold otherwise would eviscerate the statute of
limitations in these circumstances by allowing the clock to
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perpetually restart even though any alleged injury is traceable
to a decision, that DB announced to investors, to do nothing.
As to the CB Loss EOD Trusts, the relevant claims are
untimely under New York law because they are untimely under
German law. See Global Fin. Corp., 715 N.E.2d at 484 (N.Y.
C.P.L.R. § 202 requires claims to be timely under the limitation
periods of both New York and the jurisdiction where the claims
accrued).
b. Pre-EOD R&W Breaches
It is undisputed that in and before 2009, DB received
letters from third parties identifying specific loans in Trusts
that allegedly breached one or more R&Ws. PL-RSUF ¶ 79; CB-RSUF
¶ 67. As to the Phoenix Light Plaintiffs, DB received notice
regarding loans that were held in Trusts identified in the
Phoenix Light Plaintiffs’ original complaint before December 23,
2008 (six years before the original complaint) and notice
regarding loans that were held in Trusts identified in the PL
FAC before April 11, 2009 (six years before the PL FAC). As to
Commerzbank, DB received notice regarding loans that were held
in Trusts identified in Commerzbank’s original complaint before
December 23, 2009 (six years before the original complaint). In
view of these undisputed facts, DB argues that any claim that it
breached its pre-EOD contractual duties to give notice, enforce
repurchase obligations, or take any other action concerning
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these loans accrued shortly after it received these notices and
are time-barred under the New York statute of limitations. 30
DB first argues that under the GAs for 37 of the 45
relevant Trusts with alleged loan-level R&W breaches, DB had no
duty to enforce repurchase obligations. As discussed below (see
infra Section IV.A.4), where a GA did not explicitly provide
that DB had a duty to enforce repurchase obligations, DB was
under no contractual duty to do so. Because DB could not have
breached repurchase obligations for those Trusts, DB’s statute
of limitations arguments for those claims are moot.
As to four additional Trusts, DB concedes that it had a
contractual duty to enforce repurchase obligations. However, DB
argues that any claim that it breached those duties is untimely
If the Court found that certain of these claims accrued in Germany and are
untimely under German law, then those claims need not also be untimely under
the New York statute of limitations to be time-barred. However, the extent of
overlap between the claims subject to DB’s German statute of limitations
arguments and those subject to this New York statute of limitations argument
is unclear and not addressed in the parties’ papers. As discussed above,
claims relating to 29 Phoenix Light Certificates are subject to the German
statute of limitations. Certain of those Certificates were issued by Trusts
that are subject to DB’s New York statute of limitations arguments. Compare
Reyes PL-Ex. I, with Biron PL-Ex. 73. Other Phoenix Light Plaintiffs hold
different Certificates issued by those same Trusts. On this record, there
does not appear to be a way to determine whether the alleged R&W notices
concerned loans that were related to the relevant Certificates that Phoenix
Light held (making claims subject to the German statute of limitations),
rather a Certificate held by another Plaintiff. As to Commerzbank, claims
related to Certificates other than the Barrington II or Palmer 3 Certificates
are time-barred under German law and need not also be untimely under New York
law. However, DB appears to have received allegations of breaches of R&Ws
related to certain Barrington II and Palmer 3 Certificates before they were
assigned to Commerzbank. Compare Biron CB-Ex. 69, with Reyes CB-Ex. I; see
also, e.g., Goff Reply Ex. 26 at row 3676. Accordingly, those claims are not
subject to the German statute of limitations and so cannot be time-barred
unless they are untimely under New York law.
30
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under New York law because the GAs specified that those duties
arose 60 or 90 days after DB sent notices to the relevant
parties. See Goff Reply Ex. 9 (collecting the relevant GA
provisions for these four trusts). Those GAs contain provisions
that each in substance provide as follows:
In the event that the Trustee receives notice of a breach
by the Depositor of any representations and warranties
set forth in paragraphs (b), (c), (d) and (e) of Schedule
V, the Trustee shall notify the Depositor to repurchase
the Mortgage Loan at the Repurchase Price within sixty
(60) [or, for some Trusts, 90] days of the Depositor’s
receipt of such notice. If, by the end of such sixty
(60) [or, for some Trusts, 90] day period, the Depositor
fails to repurchase such Mortgage Loan, the Trustee
shall pursue all legal remedies available to the Trustee
against the Depositor under this Agreement.
Id.
There does not appear to be a genuine dispute that DB sent
notices to the relevant parties pursuant to these provisions
when it received notice of alleged R&W breaches. See generally
Reyes CB Decl. ¶¶ 18-23; Reyes CB Decl. ¶¶ 18-23; infra Section
IV.A.3. Therefore, for these Trusts, DB is correct that claims
that it failed to enforce repurchase obligations accrued at the
end of the 60- or 90-day period following the relevant party’s
receipt of DB’s notice, because that is when any alleged breach
of DB’s repurchase obligations accrued. See Chelsea Piers L.P.
v. Hudson River Park Tr., 964 N.Y.S.2d 147, 149 (App. Div.
2013). Accordingly, any claim that DB failed to enforce
repurchase obligations for loans in these four Trusts is time71
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barred to the extent that the relevant 60- or 90-day period
expired six years before the Plaintiffs first asserted claims
related to that Trust.
Finally, as to four remaining Commerzbank Trusts, DB appears
to concede that it had contractual repurchase obligations and
that the relevant GA did not specify a time for performance. DB
argues that it received “the vast majority of the R&W notices”
for these Trusts “over a year before” December 23, 2009 (six
years before Commerzbank filed its original complaint). See
Reply at 20.
“Where a contract does not specify a date or time for
performance, New York law implies a reasonable time period.”
Guilbert, 480 F.3d at 149. What constitutes a reasonable time is
“ordinarily a question for a jury.” Tedeschi v. Northland
Builders, LLC, 904 N.Y.S.2d 786, 788 (N.Y. 2010). However,
depending on the circumstances presented in each case, a court
may conclude as a matter of law that the reasonable time for
performance has expired by a certain date. Id.
Courts have rejected arguments similar to those advanced by DB
from RMBS trustees at the motion to dismiss stage, emphasizing
that “[w]hat constitutes a reasonable time period for
performance depends on the facts and circumstances of the
particular case” and cannot be resolved without a developed
record. See, e.g., W. & S. Life Ins. Co. v. U.S. Bank Nat’l
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Ass’n, No. 650259/2019, 2020 WL 6534496, at *7 (N.Y. Sup. Ct.
2020). Here, DB raises this argument on a motion for summary
judgment. However, DB does not point to any evidence in the
record that supports its argument that waiting a year or more to
enforce repurchase obligations is unreasonable as a matter of
law in view of the relevant facts and circumstances.
Accordingly, to the extent that repurchase claims as to these
four Trusts were not dismissed as untimely under German law, DB
failed to demonstrate that these claims are time-barred under
New York law.
c. Palmer 3 Certificates
It is undisputed that the Palmer 3 Certificates were
transferred to Commerzbank (or Dresdner) more than six years
before it filed its original complaint. CB-RSUF ¶ 69. DB
cursorily argues that it is entitled to summary judgment that
“any claims that accrued while those certificates were in the
Palmer 3 asset portfolio” are time-barred under New York law. CB
MSJ at 27. However, neither party analyzed which claims, if any,
in fact accrued under New York law before the Palmer 3
Certificates were transferred to Commerzbank. To the extent that
the parties dispute whether certain claims accrued before or
after the Certificates were transferred and the relevant statute
of limitations date, DB has not, as the moving party, satisfied
its burden of demonstrating that there are no disputes of
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material fact. Accordingly, DB is not entitled to summary
judgment on any such claims. See Commerzbank AG, 457 F. Supp. 3d
at 248-49 (denying summary judgment where the plaintiff “only
dedicated seven lines in its brief to the timeliness of
[certain] claims”).
C. Claims Relating to Specific Warrantors
DB argues that it is entitled to summary judgment on the
Plaintiffs’ claims relating to DB’s alleged failure to pursue
claims for breaches of R&Ws against certain warrantors.
Specifically, DB argues that certain of the Plaintiffs’ claims
are premised on DB’s alleged failure to pursue claims that would
have been precluded by bankruptcy proceedings, were released
under settlement agreements, or are otherwise time-barred.
1. Bankrupt Warrantors
DB argues that the Plaintiffs’ claims based on DB’s failure to
pursue repurchase claims against warrantors for breaches of R&Ws
are time-barred if the relevant warrantors filed for bankruptcy
more than six years before the Plaintiffs initiated these
actions. DB points to 11 warrantors that filed for bankruptcy
more than six years before the Phoenix Light Plaintiffs filed
suit and 17 warrantors that filed for bankruptcy more than six
years before Commerzbank filed suit (collectively, the “Bankrupt
Warrantors”). See Biron PL-Ex. 31; Biron CB-Ex. 31.
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Claims that DB should have pursued repurchase claims
against any Bankrupt Warrantor suffer from a fatal timing
defect. As a result of the bankruptcy filings, the Bankrupt
Warrantors’ bankruptcy stays preclude DB from taking any action
outside of the bankruptcy proceedings against any Bankrupt
Warrantor or bringing any new claims after the bankruptcy bar
dates had passed. See 11 U.S.C. § 362(a); Fed. R. Bankr.
P. 3003(c)(2); see also Fixed Income Shares: Series M v.
Citibank N.A., 314 F. Supp. 3d 552, 557-58 (S.D.N.Y. 2018)
(noting that attempts by an RMBS trustee to seek contractual
remedies against warrantors would likely have required
bankruptcy court approval as “executory contracts”).
Accordingly, for these claims, the Plaintiffs “cannot establish
breach, causation, or damages — all necessary elements for their
claims.” See Fixed Income Shares, 314 F. Supp. 3d at 557-58. 31
The Plaintiffs do not appear to dispute that DB is
entitled to summary judgment dismissing any claim that DB should
have pursued repurchase claims against any of the Bankrupt
Warrantors. Moreover, the Plaintiffs concede that DB is entitled
to summary judgment dismissing all repurchase claims for the
eight Trusts listed in Goff Reply Ex. 10 because those Trusts
Moreover, any argument that DB should have taken action before the relevant
bankruptcy stays fails, because such claims would have accrued more than six
years prior to the relevant complaints and would be time-barred.
31
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only had Bankrupt Warrantors. See Opp’n at 22. Accordingly, DB’s
motion for summary judgment dismissing these claims is granted.
However, the Plaintiffs argue that DB is not entitled to
summary judgment dismissing Trust-level repurchase claims for
any Trust that had additional warrantors that did not go
bankrupt. In its reply brief and at oral argument, DB conceded
that it is not seeking summary judgment on those claims on this
basis. See Reply at 20-21; PL ECF No. 407 at 22-23. Accordingly,
summary judgment dismissing those claims is denied.
2. Certain Repurchase Claims
DB moves for summary judgment dismissing any claim that
DBNTC breached its duty as trustee by not pursuing repurchase
demands after the fourth anniversary of a Trust’s closing date,
arguing that pursuit of such claims would have been futile
because they were time-barred under N.Y. C.P.L.R. § 202 and
California’s statute of limitations.
The parties agree that DBNTC is a resident of California.
DB argues, and the Plaintiffs appear to concede, that any claims
that DB may have had against the sponsors or originators for
breaches of R&Ws regarding the underlying mortgages arose at the
closing of the RMBS transactions. See, e.g., ACE Sec. Corp. v.
DB Structured Prod., Inc., 36 N.E.3d 623, 631 (N.Y. 2015). 32
Any argument that the cure or repurchase obligation was a substantive
condition precedent to suit that delayed accrual of any causes of action
fails under ACE Sec. Corp. As in Ace Sec. Corp., the causes of action in this
32
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However, the parties dispute where these claims accrued for
statute of limitations purposes. Under N.Y. C.P.L.R. § 202,
claims accrue “at the time and in the place of the injury.”
Deutsche Bank Nat’l Tr. Co. v. Barclays Bank PLC (“Barclays”),
140 N.E.3d 511, 517 (N.Y. 2019). DB argues that any causes of
action accrued to DBNTC in California; the Plaintiffs argue that
most of the claims accrued in New York.
During the pendency of this action, the New York Court of
Appeals considered whether DBNTC could bring claims against
warrantors for breaches of R&Ws more than four years after the
closing of an RMBS transaction. Id. at 518. The New York Court
of Appeals determined that where a trustee seeks to bring claims
in its capacity as trustee against a warrantor, it is the
trustee’s residence that controls for statute of limitations
case accrued as the result of breaches of the R&Ws by the originator or
sponsor. Substitution or repurchase were among the remedies available to
DBNTC and were not conditions precedent to a claim accruing. DBNTC “suffered
a legal wrong at the moment [the sponsors and originators] allegedly breached
the representations and warranties,” id. at 630, and thus any claims
available to DBNTC for breaches of R&Ws arose at the time of the closing of
the transactions, rather than when the relevant warrantor declined to cure
the defect.
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purposes. Id. at 518-19. 33 Accordingly, the court of appeals
concluded that under N.Y. C.P.L.R. § 202, claims for R&W
breaches brought by DBNTC, as RMBS trustee, against warrantors
must be timely under California’s 4-year statute of limitations.
Id.
The Plaintiffs argue that the claims accrued in the
location of the depositors, not DBNTC, in part because R&Ws were
made to the depositors, not to DBNTC. But under the GAs for most
of the relevant trusts, R&Ws were in fact made directly to the
trust or trustee. Goff Reply Ex. 15; PL-RSUF-2 ¶ 1124; CB-RSUF-2
¶ 1450. Regardless, the Plaintiffs have identified no legal
authority in support of their position, which appears to be
foreclosed by Barclays because there is no dispute that DBNTC
had the authority to enforce any alleged R&W breaches. Barclays,
140 N.E.3d at 519 (“As trustee, plaintiff is authorized to
enforce, on behalf of the certificateholders, the
representations and warranties in the relevant agreements.
Accordingly, it is appropriate for us to look to plaintiff’s
Barclays does not disturb the Court’s finding above that claims arising
from the Phoenix Light Certificates accrued in Germany. The court of appeals
explained that it was not “foreclos[ing] the possibility that an economic
loss may be sustained in a place other than where the plaintiffs reside,” and
that “courts may, in appropriate cases, conclude that an economic loss was
sustained in a place other than were the plaintiff resides.” Id. at 517-18.
For the reasons explained above, including because the record with respect to
the Phoenix Light Certificates provides a “workable basis” to conclude that
those claims accrued in Germany, see id. at 518, the questions of where
DBNTC’s claims and Phoenix Light’s claims accrued are distinct inquires that
turn on different facts and compel different results.
33
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residence as the place where the economic injury was sustained
and, consequently, where plaintiff’s causes of action accrued
for purposes of CPLR 202.”).
The Plaintiffs also assert that DB failed to identify which
loans had repurchase demands more than four years after the
close of a Trust, but DB appears to have provided such
information. See Goff Reply Exs. 25-26. The Plaintiffs further
argue that questions of fact exist regarding whether DB could
have pursued claims after the statute of limitations period or
entered into a tolling agreement. However, the Plaintiffs do not
point to any evidence or legal authority to support the
contention that DBNTC was under an obligation to negotiate a
tolling agreement. The Plaintiffs have also failed to provide
any basis to conclude that DBNTC’s failure to pursue repurchase
demands received after California’s four-year statute of
limitations would be a breach of DBNTC’s duties.
Accordingly, DB is entitled to summary judgment dismissing
any claims that DBNTC breached its duties by not pursuing
repurchase claims after the fourth anniversary of a Trust’s
closing date.
3. Settlement Agreements
DB argues that it is entitled to summary judgment dismissing
the Plaintiffs’ claims relating to DB’s alleged failure to
pursue claims in connection with loans originated by Fremont and
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sold to certain Trusts because such claims were released by DB
through settlement agreements. Specifically, DB seeks summary
judgment dismissing Commerzbank’s claims for failure to pursue
claims relating to three Trusts and the Phoenix Light Plaintiffs
claims for failure to pursue claims relating to five Trusts. See
Biron PL-Exs. 64, 77; Biron CB-Ex. 64.
On July 17, 2018, Fremont and DB entered into a settlement
agreement regarding certain loans, pursuant to which DB released
Freemont, “on behalf of itself [and] on behalf of each Settling
Trust,” “from all Seller Breach Claims, including without
limitation any Repurchase Claims.” Biron CB-Ex. 65 § 3(a). Also
on July 17, 2018, DB entered into a settlement agreement that
released claims relating to loans in two Phoenix Light Trusts.
Biron PL-Exs. 64-65. Both of these settlement agreements were
approved by investors holding more than two-thirds of the voting
rights in these Trusts, and under the GAs for the Trusts, DB
cannot be held liable for actions taken in good faith at the
direction of investors holding 25% or more of the voting rights.
CB-RSUF ¶ 72; PL-RSUF ¶ 84.
The Phoenix Light Plaintiffs assert claims related to three
other Trusts with Freemont loans. As to these three Trusts, a
bankruptcy court approved and ordered stipulations pursuant to
which DB settled and released “any and all past, present or
future” repurchase claims, “whether asserted or unasserted.” PL80
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RSUF ¶ 85. The stipulation appears to preserve the ability for
DB to pursue limited claims, but only if it is properly
instructed to do so by a requisite number of certicateholders.
Id.
The Plaintiffs argue that summary judgment dismissing
repurchase claims relating to Fremont is not warranted for
certain Trusts because the terms of the settlement agreements
did not encompass all repurchase claims against Fremont. The
Plaintiffs rely on Cahill v. Regan, in which the New York Court
of Appeals noted that “[a]lthough the effect of a general
release, in the absence of fraud or mutual mistake, cannot be
limited or curtailed, . . . a release may not be read to cover
matters which the parties did not desire or intend to dispose
of.” 157 N.E.2d 505, 509-10 (N.Y. 1959). But the Plaintiffs’
argument fails because the language in the releases is
unambiguous, broad, and clearly encompasses the Plaintiffs’
claims. See, e.g., Biron PL-Ex. 67 at 50 (DB releases “any
Repurchase Claims, against any Seller Party”); id. at 49
(“‘Repurchase Claims’ shall mean any and all past, present or
future claims, whether asserted or unasserted, by any Trust
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against Seller seeking the repurchase of any Mortgage Loan on
the basis of any Seller Breach Claim.”). 34
The Plaintiffs next argue that genuine issues of material fact
exist regarding whether the settlement agreements and the
agreement approved by the bankruptcy court are void as the
products of fraud, bad faith, or involving material
misstatements. The Plaintiffs’ arguments are not supported by
any allegation in their complaints and were raised for the first
time in their opposition brief. Regardless, DB’s notices to the
certificateholders explaining the Fremont settlement are clear,
attached the settlement agreements, and encouraged
certificateholders to review the agreement with advisors and to
vote. CB-RSUF-2 ¶¶ 1428-38; PL-RSUF-2 ¶¶ 1075-89. The
Plaintiffs, like other certificateholders, had the opportunity
to vote on the settlements or present their arguments to the
bankruptcy judge. 35 Moreover, the Plaintiffs have presented
The Plaintiffs’ argument that the settlements did not address document
defect claims also fails in view of the similarly broad language of the
releases. See PL-RSUF-2 ¶ 1070; CB-RSUF-2 ¶ 1425.
34
Any argument that DB lacked the authority to negotiate and settle any
potential claims against Fremont is unpersuasive. As discussed above and
recognized by other courts interpreting similar provisions, the GAs for the
trusts at issue assign the rights, title, and interest in the mortgage loans,
which would include the authority to commence and settle litigation.
Moreover, the Plaintiffs’ suggestion that DB, as trustee, lacked the
authority to negotiate and settle potential claims on behalf of the trust’s
beneficiaries seems to be in significant tension with the Plaintiffs’ claims
that DB failed to do enough to pursue claims against other warrantors.
35
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nothing more than conclusory speculation to support their
argument that any agreements were the product of fraud.
Accordingly, DB is entitled to summary judgment dismissing the
Plaintiffs’ claims that DB failed to pursue claims against
Freemont for the eight Trusts listed in Biron PL-Exs. 64 and 77
and Biron CB-Ex. 64.
D. Tort Claims and the Economic Loss Doctrine
DB moves for summary judgment dismissing all the
Plaintiffs’ tort claims on the basis that such claims are
precluded by New York’s economic loss doctrine. Under the
economic loss doctrine, “a tort action for economic loss will
not lie where the parties’ relationship is governed by an
express contract.” Ambac Assurance Corp. v. U.S. Bank Nat’l
Ass’n, 328 F. Supp. 3d 141, 157–58 (S.D.N.Y. 2018). This Court
previously dismissed certain of the Phoenix Light Plaintiffs’
tort claims as “duplicative” of other contractual claims,
because the “claims [were] not distinct from the duties in the
[GAs].” PL MTD Order, 172 F. Supp. 3d at 718. However, the Court
found that tort claims based on conflicts of interest,
allegations that DB “breached its fiduciary duty after an Event
of Default and did not take due care in performing ministerial
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acts” were not duplicative and thus were not appropriately
dismissed at the motion to dismiss stage. Id. 36
The New York Court of Appeals instructs that courts should
evaluate whether tort claims arise out of a “legal duty
independent of contractual obligations [that] may be imposed by
law as an incident to the parties’ relationship,” as well as
“the nature of the injury, how the injury occurred and the harm
it caused.” Dormitory Auth. v. Samson Constr. Co., 94 N.E.3d
456, 460–61 (N.Y. 2018). Under the economic loss doctrine,
“where plaintiff is essentially seeking enforcement of the
bargain, the action should proceed under a contract theory.” Id.
In the intervening years since the PL MTD Order, courts in this
district, faced with claims by RMBS certificateholders against
trustees, have reached different conclusions regarding whether
the economic loss doctrine precludes the Plaintiffs’ tort
claims. See BlackRock Allocation Target Shares: Series S.
Portfolio v. Wells Fargo Bank, Nat’l Ass’n, 247 F. Supp. 3d 377,
399 (S.D.N.Y. 2017) (collecting cases). “Dispositive in each
case has been the nature of the plaintiff’s claims: Does [the]
plaintiff allege damages that flow from the violation of a
professional duty, or merely from the violation of the governing
agreements?” Id.
Commerzbank also advances similar tort claims, but those claims were not
addressed in the CB MTD Order.
36
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With the benefit of factual discovery and further
developments from New York courts and courts in this district,
this Court agrees with those judges who have found the economic
loss doctrine to apply to claims against RMBS trustees,
including claims based on alleged failures to carry out
administrative tasks and to avoid conflicts of interest. Courts
in this district have been particularly skeptical of attempts to
label duties as “extracontractual” as a means to “avoid the
economic loss doctrine.” See Triaxx Prime CDO 2006-1, Ltd. v.
Bank of New York Mellon, No. 16-cv-1597, 2018 WL 1417850, at *6
(S.D.N.Y. Mar. 8, 2018) (“[P]laintiffs seem to contend that
merely labeling these claims ‘extra-contractual’ will somehow
transmogrify them into extracontractual claims. It does not.”);
see also Nat’l Credit Union Admin. Bd. v. Deutsche Bank Nat’l
Tr. Co., 410 F. Supp. 3d 662, 688-89 (S.D.N.Y. 2019) (dismissing
tort claims because “the consistent references to the PSAs
reveal how reliant [the plaintiff’s] tort claims are on the
contracts at issue”; explaining that the argument to the
contrary is “an inherently untenable position seemingly taken
purely to avoid the economic loss doctrine”); Nat’l Credit Union
Admin. Bd. v. U.S. Bank Nat’l Ass’n, 439 F. Supp. 3d 275, 283
(S.D.N.Y. 2020) (same).
To be clear, the above-cited authorities do not stand for
the principle that every claim by an RMBS certificateholder
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against a trustee always sounds in contract. In this case, the
Plaintiffs have pointed to a variety of alleged conflicts of
interest by DB that were inconsistent with DB’s role as a
trustee and were potentially detrimental to certificateholders.
The Plaintiffs suggest that DB had a duty to avoid conflicts of
interest and that its failure to avoid such “positional”
conflicts swayed DB’s decision to the Plaintiffs’ detriment. For
example, the Plaintiffs argue that DB was reluctant to highlight
conduct by RMBS sellers or servicers, because doing so might
highlight DB’s or its affiliates’ own failures.
Nevertheless, the Plaintiffs’ arguments are largely
speculative and without merit. The injury and damages allegedly
arising from DB’s conflicts of interest are DB’s alleged failure
to uphold duties that DB was allegedly already required to
perform under the GAs, such as failing to enforce repurchase
obligations for loans with R&W breaches and defective mortgage
files or failing to appropriately monitor servicers.
Accordingly, it is clear that the “injury” or “damages arising
from conflict of interest sound in defendants’ failure to take
contractual actions — that is, losses due to failures to take
action in response to servicer violations and to alert the
certificateholders to the servicers’ misconduct.” See Nat’l
Credit Union Admin. Bd., 439 F. Supp. 3d at 283–84.
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Accordingly, because the Plaintiffs’ claims for breach of
fiduciary duty, negligence, and gross negligence in this case
are precluded by the economic loss doctrine, DB is entitled to
summary judgment dismissing those claims.
IV.
Finally, DB argues that it is entitled to summary judgment on
the merits of the Plaintiffs’ claims because there is no
evidence in the record that DB breached its duties. DB moves for
summary judgment dismissing claims that it failed to act in
accordance with its statutory and contractual obligations both
before and after declared and alleged EODs. 37
A. Pre-EOD Claims
The Plaintiffs assert claims based on DB’s alleged failure to
carry out certain duties prior to the occurrence of an ongoing
EOD. In particular, the Plaintiffs argue that DB breached its
because DB failed to (1) investigate whether loans in the Trust
breached R&Ws; (2) notify other transaction parties of R&W
breaches; and (3) enforce repurchase obligations. The parties
generally refer to such claims as “pre-EOD” claims. The
For the avoidance of doubt, many of the claims discussed below were already
dismissed on other grounds, including grounds relating to standing and
timeliness. Nonetheless, the Court considers the merits-based arguments below
for these claims and finds that certain of them should be dismissed for the
alternative, additional reason that they lack substantive merit.
37
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Plaintiffs advance pre-EOD claims for 59 out of the 85 Trusts at
issue. 38
1. Claims Related to Document Delivery Failures
As an initial matter, the parties dispute the scope of the
PL MTD Order and whether and to what extent certain of the
Phoenix Light Plaintiffs’ pre-EOD claims have already been
dismissed. In its motion to dismiss, DB argued that all of the
Phoenix Light Plaintiffs’ claims concerning incomplete mortgage
files, including claims arising from DB’s failure to repurchase
loans with defective documentation, should be dismissed as timebarred. PL ECF No. 36 at 15-16. The Phoenix Light Plaintiffs
conceded that they were not pursuing claims related to any “pre[EOD] failure to adhere to [DB’s] document delivery and
certification obligations.” PL ECF No. 40 at 12-13; PL MTD
Order, 172 F. Supp. 3d at 708-09 (the parties agreed that “any
claims arising from the faulty deposit of the initial
documentation of the loans would be time barred”).
The Phoenix Light Plaintiffs now argue that the PL MTD
Order did not dismiss its pre-EOD claims based on DB’s alleged
failure to enforce repurchase obligations for loans identified
in the exception reports of 14 Trusts. See Goff Reply Ex. 12.
To the extent that the Plaintiffs previously asserted pre-EOD claims as to
the remaining 26 Trusts, those claims are dismissed because the Plaintiffs
abandoned them. See Opp’n at 39.
38
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But the Plaintiffs’ argument misconstrues the PL MTD Order. The
PL MTD Order explained that “[c]laims for document delivery
failures are barred by the statute of limitations,” referring to
and citing allegations in the PL SAC that explicitly discussed
claims directed to repurchase obligations relating to document
delivery issues. PL MTD Order, 172 F. Supp. 3d at 709 (citing PL
SAC ¶¶ 121-22, 164-65); see also id. (“Any claims arising from
facts prior to December 23, 2008, the longest statute of
limitations applicable to any of the claims, would be time
barred.”).
Accordingly, all pre-EOD claims for the 14 Trusts listed in
Goff Reply Ex. 12 are without merit. Because the Plaintiffs
abandoned pre-EOD claims for 26 Trusts and the Court dismissed
pre-EOD claims for another 14 Trusts on the merits, the Court
now addresses merits-based arguments concerning pre-EOD claims
relating to the remaining 45 Trusts.
2. Pre-EOD Duty to Investigate
DB first argues that it is entitled to summary judgment
dismissing the Plaintiffs’ claims that DB breached a pre-EOD
contractual duty to investigate whether loans breached R&Ws. DB
contends that under the GAs, it had no duty to investigate
absent direction from investors holding more than 25% of the
voting rights in the Trust at issue. The Plaintiffs concede that
their pre-EOD claims “overwhelmingly concern DB’s breaches of
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express enforcement obligations where DB discovered or had
actual knowledge of R&W breaches and document defects, as
opposed to DB’s failure to ‘investigate.’” Opp’n at 40. Still,
the Plaintiffs argue that DB had a duty to investigate whether
loans breached R&Ws regardless of whether it had investor
direction and indemnification based on the information that DB
had regarding widespread R&W breaches, poor loan performance,
and industry-wide misconduct.
The parties’ dispute regarding DB’s duties centers on two
clauses that the parties agree are found in substantively
identical forms in nearly all of the GAs. Section 8.01 of an
exemplary GA provides:
No provision of this Agreement shall be construed to
relieve the Trustee from liability for . . . its own
negligent failure to act or its own willful misconduct.
Unless an Event of Default known to the Trustee has
occurred and is continuing: (a) the duties and
obligations of the Trustee shall be determined solely by
the express provisions of this Agreement, the Trustee
shall not be liable except for performance of the duties
and obligations specifically set forth in the Agreement,
no implied covenants or obligations shall be read into
this Agreement against the Trustee; (b) the Trustee
shall not be liable for an error of judgment made in
good faith . . . unless it is finally proven that the
Trustee was negligent in ascertaining the pertinent
facts . . . .
Biron PL-Ex. 2 § 8.01. Section 8.02 of the same GA provides:
Except as otherwise provided in Section 8.01: . . . the
Trustee shall not be bound to make any investigation .
. . unless requested in writing to do so by the Holders
of Certificates evidencing not less than 25% of the
Voting Rights.”
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Id. § 8.02.
The Plaintiffs read these provisions to mean that, prior to
an EOD, DB cannot be compelled (“bound”) by a certificateholder
without control of 25% of the requisite voting rights, and that
DB is liable for its “negligent failures to act” unless it
demonstrates it was not “negligent in ascertaining the facts”
and made any judgment of error in good faith. By contrast, DB
argues that these provisions make clear that DB only has the
“duties and obligations set forth in this Agreement,” which do
not include any freestanding duty to investigate absent
direction from investors controlling greater than 25% of voting
rights. DB further contends that the specificity of “no duty to
investigate” controls over the general references to “negligent”
actions in the provisions of Section 8.01.
It is clear that under Sections 8.01 and 8.02, DB has no
freestanding obligations to investigate absent instructions from
investors with control of 25% of the required voting rights —
until DB “know[s]” of an EOD. Therefore, to the extent that the
Plaintiffs truly sought to claim that DB has a freestanding duty
to actively investigate loans absent any evidence, knowledge, or
notice, that argument fails. But this does not foreclose the
possibility that DB had and breached a duty to investigate
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either because it “knew” of an EOD or, as discussed below,
“discover[ed]” loan-level R&W breaches.
As Judge Failla has explained, when a trustee’s duties are
triggered by its “discovery” or “knowledge” of a breach, just
“because [a defendant trustee] cannot be required to investigate
under the parties’ contracts” does not mean that a trustee can
“avoid liability by willfully blinding itself for the purpose of
disclaiming knowledge.” BlackRock Allocation Target Shares:
Series S Portfolio v. Wells Fargo Bank, Nat’l Ass’n, No. 14-cv10067, 2017 WL 3610511, at *9 (S.D.N.Y. Aug. 21, 2017). While DB
does not have an ever-present obligation to “nose to the
source,” if DB “suspected a fact and realized its probability,
but refrained from confirming it in order [to] later deny
knowledge,” then something akin to duty to investigate arose.
Id. at *10.
As discussed above and below, the Plaintiffs have developed
evidence of DB’s knowledge of specific loan-level R&W breaches
and of potential EODs. Whether and to what extent this knowledge
was so widespread and compelling that it apprised DB of
potential breaches relating to other loans or of EODs in other
Trusts, and whether DB chose to be willfully blind of and
refused to investigate those potential issues, cannot be
resolved on this record at the summary judgment stage.
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Accordingly, summary judgment dismissing these claims on this
basis is denied.
3. Pre-EOD Notice Obligations
DB seeks summary judgment dismissing the Plaintiffs’
contractual and, for the indenture trusts, TIA Section 315(b)
claims that DB breached pre-EOD duties to provide notice of
loan-level R&W breaches to other enumerated parties.
It is undisputed that for the Trusts listed on Biron CB-Ex. 54
and Biron PL-Ex. 54, DB had a duty to provide notice of loanspecific R&W breaches to contractually specified parties only
upon DB’s “discovery” of any such breach (the “Discovery-Only
Trusts”). It is further undisputed that for the trusts on Biron
CB-Ex. 55 and Biron PL-Ex. 55, DB had a duty to provide notice
of a loan-specific R&W breaches to contractually specified
parties upon either “discovery” or “receipt of written notice”
of any such breach (the “Discovery/Notice Trusts”). However, the
parties dispute the meaning of “discovery” and “receipt of
written notice” as used in the GAs and whether DB obtained the
level of knowledge required to trigger its notice obligations.
The parties further dispute whether, if DB’s duties to provide
notice to other parties were triggered, DB satisfied those
duties.
At the summary judgment stage, a Plaintiff advancing claims
arising from alleged pre-EOD breaches of notice and repurchase
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obligations must come forward with “loan- or Trust-specific
proof relative to [the trustees] knowledge of any breach.” See
Phoenix Light SF Ltd. v. Bank of New York Mellon, No. 14-cv10104, 2017 WL 3973951, at *8 (S.D.N.Y. Sept. 7, 2017)
(collecting cases). There is undisputed evidence in the record
that DB received letters from third parties alleging that loans
in the majority of Discovery-Only and Discovery/Notice Trusts
breached R&W’s. 39 See, e.g., Lucht Ex. 131 (“This letter serves
as written notification of the underlying causes of the mortgage
insurance rescissions which are direct breaches of the
representations and warranties made by the Seller . . . .”). The
Plaintiffs argue that by receiving these letters, DB
“discover[ed]” and was put on “written notice” of loan-level R&W
breaches within the meaning of the GAs. DB counters that these
letters constituted mere allegations of R&W breaches that did
not give DB “actual knowledge” of any breaches, which DB argues
is required under the GAs to trigger its notice obligations.
DB’s arguments are without merit. Regardless of whether
“discovery” in the GAs is interpreted as requiring “actual
knowledge” or some lower standard, a reasonable jury could
conclude that the letters that DB received afforded DB the
The Plaintiffs concede that DB did not receive any notice for loans in the
following Trusts: IMM 2005-7, IMM 2005-8, ECR 2005-3, GSAMP 2005-HE4, and
WAMU 2005-AR13. PL-RSUF ¶¶ 93-94; CB-RSUF ¶¶ 80-81.
39
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requisite knowledge under the GAs to trigger its duties. 40 See
Royal Park Invs. SA/NV v. Deutsche Bank Nat’l Tr. Co., No. 14cv-4394, 2016 WL 439020, at *4 (S.D.N.Y. Feb. 3, 2016) (the
trustee’s “obligation to enforce breaches of R&Ws upon receipt
of ‘notice’ may be triggered both when it receives notice of a
breach from another party and when it independently discovers
such a breach”).
Nonetheless, DB argues that even if its notice duties were
triggered by these letters, it is entitled to summary judgment
dismissing these claims because it complied with any notice
obligations. See CB-RSUF ¶ 81; PL-RSUF ¶ 94. The GAs generally
provide that once DB discovers or receives written notice of a
loan-level R&W breach, DB must “notify [other parties] of such
. . . breach.” See Fitzgerald Ex. 10; Kane Ex. 363. It is
undisputed that when DB received letters alleging R&W breaches,
it forwarded copies of those letter to the relevant contractual
parties, along with a form cover letter known as a “First
Letter.” Reyes PL Decl. ¶¶ 18-19; Reyes CB Decl. ¶¶ 18-19. If DB
did not receive a response to the First Letter within a certain
time period, DB sent out another form cover letter known as a
“Second Letter,” which again attached the alleged R&W breach
Because the letters create a genuine dispute of material fact as to whether
DB had “actual knowledge” of loan-level R&W breaches, the Court need not
resolve at this stage whether “discovery” under the GAs is limited to actual
knowledge or some lower level of knowledge, such as inquiry notice.
40
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notice. Id. ¶ 20; see also id. at Exs. D, E (exemplary First and
Second Letters); Lucht Ex. 131.
The Plaintiffs argue that the First and Second Letters did
not satisfy DB’s notice obligations under the GAs. The
Plaintiffs quibble with the wording employed in certain First
and Second Letters, arguing that the language was not direct or
specific enough to apprise recipients of potential R&W breaches.
However, it is undisputed that each First and Second Letter was
sent along with the alleged R&W breach letters that DB received.
The Plaintiffs cannot have it both ways: if the alleged R&W
breach letters were sufficient to have put DB on notice of R&W
breaches, then DB forwarding these letters along to the relevant
contractual parties must have satisfied its notice obligations
under the GAs.
Accordingly, the Plaintiffs’ pre-EOD notice claims for
these Trusts are without merit and are dismissed on this basis.
4. Pre-EOD Repurchase Obligations
DB argues that it is entitled to summary judgment on the
Plaintiffs’ claims that it breached pre-EOD duties to enforce
repurchase obligations. DB advances different arguments as to
different Trusts.
First, DB argues that pre-EOD repurchase claims for the
Trusts on PL Reyes-Ex. G and CB Reyes-Ex. G should be dismissed
because there is no evidence that DB discovered or received any
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written notice alleging any R&W breach in those trusts. The
Plaintiffs do not contest that for eight Phoenix Light trusts
and three Commerzbank trusts, there is no evidence that DB
discovered or received notice of any alleged R&W breach. Goff
Reply Ex. 13; see also PL RSUF-2 ¶ 1433; CB RSUF-2 ¶ 1756.
Because there is no dispute that DB’s repurchase obligations are
triggered only when DB discovers or receives written notice of
R&W breaches, DB is entitled to summary judgment dismissing the
pre-EOD enforcement claims for these Trusts.
For one Trust on PL Reyes-Ex. G, the Plaintiffs point to a
loan-specific notice that DB received. However, it is undisputed
that the relevant notice was rescinded. PL-RSUF-2 ¶ 597. 41
Accordingly, summary judgment dismissing pre-EOD repurchase
claims for this Trust is granted.
As to the remaining Trusts on PL Reyes-Ex. G and CB ReyesEx. G, the Plaintiffs argue that DB breached its duty to enforce
repurchase of loans with defective mortgage files. See Goff
Reply Ex. 12. But any such claims are time-barred for the
reasons discussed in the PL MTD Order and restated above. DB is
therefore entitled to summary judgment dismissing pre-EOD
repurchase claims for these trusts.
See Goff Reply Ex. 19 (“Our repurchase claims at the time were based upon,
what were believed to be breaches of various representation and warranties
made by the Responsible Party to the various trusts who own the Mortgage
Loans. Upon further review of the repurchase claims, it has been determined
that our repurchase claims against the Responsible Party are not valid.”).
41
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Second, DB argues that it could not have breached any preEOD enforcement duties for the Trusts on Biron PL-Ex. 56 and
Biron CB-Ex. 56 because DB had no such duties under those GAs.
It is undisputed that these GAs lack any provision expressly
stating that DB has repurchase duties. Instead, the Plaintiffs
rely on clauses in the GAs that generally provide as follows:
Section 2.04 Execution and Delivery of Certificates. The
Trustee acknowledges the transfer and assignment to it
of the Trust Fund and, concurrently with such transfer
and assignment, has executed and delivered to or upon
the order of the Depositor, the Certificates in
authorized
Denominations
evidencing
directly
or
indirectly the entire ownership of the Trust Fund. The
Trustee agrees to hold the Trust Fund and exercise the
rights referred to above for the benefit of all present
and future Holders of the Certificates.
Handlin Ex. 23; see also CB-RSUF ¶ 83; PL-RSUF ¶ 96.
According to the Plaintiffs, because these GAs afford DB
the “right” to enforce repurchase obligations in provisions
“above” these clauses, this language creates an affirmative duty
to enforce repurchase obligations in certain circumstances.
Courts confronted with the question of whether
substantially similar clauses create an affirmative duty to
enforce repurchase obligations have come to different
conclusions. Compare, e.g., Commerzbank AG v. U.S. Bank Nat’l
Ass’n, 457 F. Supp. 3d 233, 258 (S.D.N.Y. 2020) (concluding that
a similar provision “does not require [the trustee] to enforce
the obligations of other deal parties to repurchase loans”), and
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W. & S. Life Ins. Co. v. Bank of N.Y. Mellon, 129 N.E.3d 1085,
1093–94 (Ct. App. Ohio 2019) (applying New York law; finding
that similar language “does not clearly set out the detail
required to impose a duty on [the trustee]. If the trustee’s
duties included the obligation to require [the originator] to
substitute or repurchase mortgage loans, those duties would have
had to have been specifically set forth in the PSA.”), with W. &
S. Life Ins. Co. v. U.S. Bank N.A., No. 650259/2019, 2020 WL
6534496, at *4 (N.Y. Sup. Ct. Nov. 5, 2020) (finding that the
trustee, in agreeing to “exercise the rights referred to above
. . . assumed an affirmative duty to enforce the repurchase
obligation”), and Royal Park, 2016 WL 439020, at *4 (same). 42
Reading each GA as a whole in view of well-established law
recognizing the limited nature of the duties of an indenture
trustee, DB’s interpretation prevails. The duties and
obligations of an indenture trustee “are exclusively defined by
the terms of the indenture agreement.” Meckel v. Cont’l Res.
Co., 758 F.2d 811, 816 (2d Cir. 1985); CFIP Master Fund, Ltd. v.
Citibank, N.A., 738 F. Supp. 2d 450, 472 (S.D.N.Y. 2010).
The Plaintiffs’ argument that DB is collaterally estopped on this issue by
Royal Park is without merit. Royal Park was an order denying a motion to
dismiss, which is not a “valid and final judgment on the merits.” See Wills
v. RadioShack Corp., 981 F. Supp. 2d 245, 265 (S.D.N.Y. 2013); see also Flood
v. Just Energy Marketing Corp., 904 F.3d 219, 236-37 (2d Cir. 2018).
Moreover, the GAs and precise contract language at issue in Royal Park are
not identical to the GAs and language at issue in this case. Accordingly, DB
is not precluded from arguing in this case for its favored interpretation of
these clauses.
42
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Moreover, each GA in substance provides that before an EOD, the
“duties and obligations of” DB “shall be determined solely by
the express provisions of this Agreement, and [DB] shall not be
liable except for the performance and obligations specifically
set forth in this agreement.” Biron PL-Ex. 35 (emphasis added);
Biron CB-Ex. 35. Each GA further provides in substance that “no
implied covenants or obligations shall be read into this
agreement against” DB. Id.
This clear and specific language, read in view of the law
governing the duties of an indenture trustee, demonstrates that
it would be improper to interpret the vague, general language of
the “rights referred to above” clauses to create an implied
repurchase duty in direct contravention of the GAs’ other
provisions. See Commerzbank AG, 457 F. Supp 3d at 258 (“The PSAs
are complicated and intricate agreements that impose numerous
obligations. Engrafting a generalized good faith obligation that
creates additional undefined duties is a bridge too far.”);
CFIP, 738 F. Supp. 2d at 471-75 (contract language requiring the
trustee to “discharge its responsibilities ‘for the benefit of
the holders of the Certificates,’” does not create obligations
beyond “the narrowly circumscribed responsibilities identified
in the trust agreement”). The “rights referred to above”
language is properly understood to “delineate that the trustee
holds the trust fund for the benefit of the investor rather than
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for the trustee’s own benefit or the benefit of any other party
to the PSA,” rather than to generate any implied duties. W. & S.
Life Ins., 129 N.E.3d at 1094 (citing LNC Inv., Inc. v. First
Fid. Bank, Nat. Ass’n, 935 F. Supp. 1333, 1347 (S.D.N.Y. 1996));
see also Restatement (Third) of Trusts § 2 (“[A] trust involves
three elements: (1) a trustee, who holds the trust property and
is subject to duties to deal with it for the benefit of one or
more others . . . .”).
Because DB was not under any contractual duty to enforce
repurchase obligations for the Trusts in Biron PL-Ex. 56 and
Biron CB-Ex. 56, all pre-EOD repurchase claims related to those
Trusts are without merit and dismissed on this basis.
Third, DB moves for summary judgment dismissing pre-EOD
enforcement claims for the Trusts listed in Biron PL-Ex. 57 and
Biron CB-Ex. 57. DB argues that for these Trusts, the relevant
GAs provide that DB had a duty to enforce loan repurchases only
if directed to do so by the depositor of the Trusts, and that
there is no evidence that these conditions were ever satisfied.
In support of its argument, DB relies on declarations from
Ronaldo Reyes, Vice President in Trust Administration at DBNTC.
Mr. Reyes declared that DB’s internal documents do not reflect
“that [DB] received any communication demonstrating that the
conditions necessary for enforcement existed.” Reyes PL Decl. ¶
29; Reyes CB Decl. ¶ 29.
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The Plaintiffs do not dispute that there is no evidence in
the record that these conditions were ever satisfied. Instead,
the Plaintiffs argue that DB failed to come forward with
evidence that it gave the depositors notice of the R&W breaches
that it discovered. The Plaintiffs invoke the prevention
doctrine, contending that DB’s alleged failure to provide the
depositors notice renders DB’s repurchase duties enforceable
despite the fact that DB did not receive direction from the
depositors. See, e.g., Royal Park, 2016 WL 439020, at *5 (under
the prevention doctrine, “a party may not insist upon
performance of a condition precedent when its nonperformance has
been caused by the party itself”).
The Plaintiffs’ invocation of the prevention doctrine
fails. Under New York law, the Plaintiffs bear the burden of
proving that DB caused the depositors’ failure to direct it to
enforce repurchase obligations by not notifying the depositors
of R&W breaches. See, e.g., Lindenbaum v. Royco Prop. Corp., 567
N.Y.S.2d 218, 221 (App. Div. 1991); WorldCo Petroleum NY Corp.
v. Keshtgar, No. 011390/08, 2011 WL 5840078, at *4-5 (N.Y. Sup.
Ct. Oct. 31, 2011). The Plaintiffs point to no evidence that DB
failed to notify depositors of R&W breaches. Indeed, as
discussed above, the uncontroverted evidence establishes that
after receipt of a breach notice, DB sent First Letter notices
to “the parties identified in the respective” GAs. Reyes PL
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Decl. ¶¶ 18-19; Reyes CB Decl. ¶¶ 18-19. In any event, “a
defendant’s failure to send a notice to cure to the servicers is
not ‘active conduct’ within the meaning of the prevention
doctrine.” BlackRock Balanced Capital Portfolio (FI) v. U.S.
Bank Nat’l Ass’n, 86 N.Y.S.3d 484, 486 (App. Div. 2018); Nat’l
Credit Union Admin. Bd. v. Deutsche Bank Nat’l Tr. Co., 410 F.
Supp. 3d 662, 685 (S.D.N.Y. 2019). Accordingly, DB is entitled
to summary judgment dismissing pre-EOD enforcement claims on
this basis for the Trusts on Biron PL-Ex. 57 and Biron CB-Ex.
57. 43
Fourth, DB moves for summary judgment on pre-EOD repurchase
claims relating to the loans on Reyes PL-Ex. U and Reyes CB-Ex.
U on the basis that those loans paid off without a loss.
However, the Plaintiffs point to evidence that raises a genuine
dispute of fact as to whether these loans were in fact paid off
without a loss. See, e.g., Beckles Decl. Table 2; CB-RSUF ¶ 86;
PL-RSUF ¶ 99. Accordingly, summary judgment dismissing the
The Plaintiffs’ reliance on Royal Park fails. As noted above, Royal Park
was a decision on a motion to dismiss. In denying DBNTC’s motion to dismiss
certain pre-EOD enforcement claims, Judge Nathan accepted the plaintiff’s
allegation that DBNTC did not provide the depositor with notice of discovered
breaches as true. Royal Park, 2016 WL 439020, at *5 (“Assuming that the
Defendant did not provide the Depositor with notice of discovered breaches,
the Depositor was unable to direct the Defendant to pursue any remedies.”)
(emphasis added). Royal Park is inapposite here, where on a motion for
summary judgment, the Plaintiffs have failed to satisfy their burden of
showing that DB failed to provide depositors with the relevant notices.
43
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Plaintiffs’ repurchase claims on this basis for these loans (and
their associated Trusts) is denied.
Fifth, DB moves for summary judgement dismissing pre-EOD
repurchase claims relating to the loans on Reyes PL-Ex. N and
Reyes CB-Ex. N on the basis that DB did in fact commence
repurchase lawsuits against the warrantors after receiving
direction from investors. Relying on the complaints in those
lawsuits, the Plaintiffs argue that there is a genuine dispute
of material fact as to whether the loans on Reyes PL-Ex. N and
Reyes CB-Ex. N completely overlap with the loans at issue in
those lawsuits. Compare, e.g., Reyes CB-Ex. N (identifying 1,970
repurchase log rows for the HVMLT 2007-2 Certificate), with
Reyes CB-Ex. P ¶¶ 63-66 (repurchase action complaint regarding
the HVMLT 2007-2 Certificate; identifying only 85 loans). DB is
not entitled to summary judgment regarding loans that were not
actually subject to a repurchase action. Accordingly, summary
judgment dismissing pre-EOD repurchase claims on this basis is
granted to the extent that the relevant loans in Reyes PL-Ex. N
and Reyes CB-Ex. N were identified in repurchase action
complaints; summary judgment is denied on this basis to the
extent that they were not.
Sixth, DB moves for summary judgment dismissing pre-EOD
repurchase claims relating to the loans on Reyes PL-Ex. T and
Reyes CB-Ex. T on the basis that DB was directed by
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certificateholders to enter into tolling agreements with the
relevant warrantors. DB relies on the declaration of Mr. Reyes,
who declared in relevant part that “the Trusts where a tolling
agreement was executed are set forth in the Biron Declaration.”
Reyes CB Decl. ¶ 32; Reyes PL Decl. ¶ 32. Mr. Biron in turn
declared that he “understand[s] that Defendant entered into and
subsequently extended, an agreement with certain Warrantors
relating to the prosecution of” relevant repurchase claims.
Biron CB Decl. ¶ 154, Biron PL Decl. ¶ 186.
However, as the Plaintiffs correctly note, the actual
tolling agreements relied on by DB are not in the record.
Without the actual agreements, there exist genuine questions of
material fact as to whether DB fully discharged its duties by
entering these agreements. For example, Mr. Biron’s statement
that DB entered into agreements with “certain Warrantors” leaves
open the possibility that the agreements omitted other
responsible parties under the GAs. Accordingly, summary judgment
dismissing repurchase claims for these Trusts on this basis is
denied.
Seventh, DB moves for summary judgement dismissing the preEOD repurchase claims relating to the loans on Reyes CB Ex. V,
arguing that by the time DB received notice of any breaches,
Commerzbank no longer owned any Certificates issued by the Trust
holding those loans. Commerzbank contends that DB’s argument is
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not supported by the evidence that DB submitted in connection
with its motion for summary judgment, the repurchase log, which
did not contain row numbers. However, DB submitted a version of
the repurchase log with row numbers with its reply brief and
represented that it produced a native version of the repurchase
log with row numbers to Commerzbank during discovery. See Goff
Reply Ex. 26; CB-RSUF ¶ 91; see also Handlin Ex. 558. This
evidence demonstrates that Commerzbank sold the relevant
certificates before DB received notice of breaches in these
loans. Accordingly, summary judgment dismissing pre-EOD
repurchase claims relating to the loans on Reyes CB Ex. V is
granted on this basis.
Finally, DB moves for summary judgment on any remaining
pre-EOD repurchase claims on the basis that DB did not have
actual knowledge of any R&W breaches. However, that argument
fails for the reasons explained above: a genuine dispute of
material fact exists as to whether DB had knowledge of R&W
breaches sufficient to trigger its repurchase obligations under
the GAs. See supra Sections IV.A.2-3. Accordingly, summary
judgment on the remaining pre-EOD repurchase claims on this
basis is denied. 44
44 DB’s fallback position — that all pre-EOD repurchase claims should be
dismissed because of its purported good faith belief that it acted in
accordance with the GAs — is without merit. “[W]hether a party to a contract
has acted in good faith generally presents a question of fact for a jury.”
Bank of N.Y. Mellon Tr. Co., Nat’l Ass’n v. Telos CLO 1006-1 Ltd., 274 F.
106
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B. Post-EOD Claims
DB argues that it is entitled to summary judgment
dismissing the Plaintiffs’ claims that DB breached its duties to
act as a “prudent person” following the Declared EODs and other
events that the Plaintiffs contend constituted EODs (“Alleged
EODs”).
1. Alleged EOD Claims
The Plaintiffs claim that DB breached its contractual and,
for the indenture trusts, statutory duties relating to every
Trust by not declaring EODs that purportedly resulted from
alleged breaches by servicers or issuers and then not acting as
a prudent person. DB contends that it is entitled to summary
judgment on these claims, arguing that the Plaintiffs lack
admissible, loan- or Trust-specific evidence that DB had
“written notice” or “actual knowledge” of any such purported
EOD, which is necessary to trigger DB’s prudent person duties.
The Plaintiffs set forth a number of theories as to why DB
should have declared EODs for various Trusts, including because
DB allegedly knew of (1) misconduct by servicers related to
Supp. 3d 191, 215 (S.D.N.Y. 2017). There is certainly evidence in the record
in support of DB’s argument. However, the Plaintiffs highlight other
evidence, including DB employee deposition testimony, that raises genuine
questions as to whether DB believed in good faith that it was not obligated
to take certain actions, or instead failed to act for some other reason,
including because it failed to properly investigate and appreciate the scope
of its obligations under the GAs. See Opp’n at 65-67 (collecting record
cites).
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robo-signing; (2) misconduct by servicers related to real estate
owned (“REO”) properties and foreclosures in a number of
municipalities; (3) servicers’ non-compliance with various
aspects of Regulation AB (“Reg AB”); and (4) issuers’ failure
enforce loan repurchase obligations.
The Plaintiffs, in turn, move for summary judgment that
these same events constituted EODs and that DB had sufficient
knowledge of them. It is plain from the parties’ Local Rule 56.1
statements and counterstatements, submitted in support of the
Plaintiffs’ and DB’s respective motions for summary judgment,
that issues relating to whether EODs occurred and whether DB
knew of them are riddled with genuine disputes of material fact.
The record is replete with conflicting evidence relating to
these issues, making it far from clear that either party is
entitled to summary judgment on these issues. See Commerzbank
AG, 457 F. Supp. 3d at 255-56 (denying summary judgment where
“material issues of fact abound as to whether EODs occurred”).
Take, for example, the parties’ dispute as to whether DB
had sufficient knowledge of servicer robo-signing violations.
The Plaintiffs point to DB witness testimony and communications
between DB and servicers that the Plaintiffs contend demonstrate
DB’s knowledge of loan and Trust specific robo-signing
misconduct. See, e.g., PL-RSUF-2 ¶¶ 1303-57, CB-RSUF-2 ¶¶ 161871. DB disputes the Plaintiffs’ characterization of the
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communications between DB and the servicers and points to other
testimony that DB argues forecloses any inference that DB had
the requisite loan-level knowledge of any misconduct. Id.
Similar disputes over the proper interpretation of certain
pieces of evidence and which cherry-picked deposition excerpts
should prevail underpin each of the parties’ arguments as to
whether EODs did or did not occur and whether DB had sufficient
knowledge of those EODs.
Accordingly, summary judgment dismissing the Alleged EOD
Claims on this basis is denied.
2. Prudent Person Duties
DB moves for summary judgment that it satisfied its prudent
person duties following the Declared and Alleged EODs. As
discussed below, the Plaintiffs also move for summary judgment
that DB did breach its post-EOD prudent person duties.
The Plaintiffs contend that DB breached its prudent person
duties because DB (1) did not educate its employees about DB’s
post-EOD prudent person duties; (2) took no deliberative action
in response to EODs; (3) sat on its hands after sending out EOD
notices; and (4) did nothing differently after EODs occurred.
See P-CSUF-Reply ¶¶ 546-49. DB argues that it satisfied any
prudent person duties by deciding not to commence expensive
investigations into EODs absent investor direction. Moreover, DB
argues that there is no evidence in the record that DB’s post109
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EOD behavior failed to comply with any industry custom or
established standard of care.
On this record, neither party is entitled to summary
judgment on these claims on this basis. A reasonable factfinder
could conclude that DB’s failure to take certain actions postEOD breached its prudent person duties. A reasonable factfinder
could also determine that further investigation and other
actions by DB following an EOD would have been imprudently
expensive and that the most sensible course of action would have
been to await further instructions from certificateholders
before expending additional resources. The Plaintiffs’ failure
to present evidence that other RMBS trustees took the steps that
they claim were mandated is informative, though not necessarily
dispositive. Although the scope of an RMBS trustee’s duties is
informed by industry standards, those duties are not entirely
governed by how other trustees act. Cf. Fed. Hous. Fin. Agency
v. Nomura Holding Am., Inc., 873 F.3d 85, 134 (2d Cir. 2017).
Because there are genuine disputes of material fact as to
whether DB satisfied its post-EOD duties to act prudently,
summary judgment dismissing these claims on this basis is
denied.
3. Remaining EOD Claims
DB moves for summary judgment dismissing two remaining
categories of post-EOD claims.
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First, DB argues that it is entitled to summary judgment
dismissing any claims that it breached post-EOD duties following
the 2012 and 2014 Downgrade EODs affecting one of the Sold
Certificates, MSAC 2006-HE5. It is undisputed that the Downgrade
EODs occurred after Commerzbank sold its holding in the relevant
Trust. CB-RSUF ¶ 103. Because, as explained above, Commerzbank
did not retain any claims to the Sold Certificates after the
sale, summary judgment dismissing these claims is granted.
Second, DB argues that the occurrence of certain events
(“Alleged Trigger Events”) did not trigger DB’s prudent person
duties as to the Trusts in Biron PL-Ex. 33 and Biron CB-Ex. 33.
The GAs for six of these Trusts provide that DB’s prudent person
duties are triggered only if a “Master Servicer Event of
Default” occurs. The Plaintiffs argue that the GAs for these
Trusts require the Master Servicer to “use its reasonable good
faith efforts to cause the Servicers to duly and punctually
perform their duties and obligations hereunder,” and that if a
Master Servicer knew of the Alleged Trigger Events, it had a
duty to act. See, e.g., Handlin Ex. 19. The Plaintiffs contend
that because the Master Servicer knew of the Alleged Trigger
Events yet failed to do anything, a Master Servicer EOD was
triggered and DB was required to act prudently. PL-RSUF-2 ¶
1397, CB-RSUF-2 ¶¶ 1715-19.
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DB does not appear to dispute that the Master Servicers
knew of the Alleged Trigger Events and that there is no evidence
that Master Servicers did anything to address these events.
Accordingly, summary judgment on post-EOD prudent person claims
for these Trusts on this basis is denied.
V. The Plaintiffs’ Motion for Summary Judgment
The Plaintiffs have cross-moved for partial summary
judgment. The Plaintiffs primarily seek declarations that (1)
EODs occurred in the trusts and that DB failed to declare EODs,
(2) DB had a pre-EOD obligation to enforce breaches of R&Ws and
to have sufficient policies and procedures in place to detect
the occurrences of EODs, (3) DB had knowledge of missing or nonconforming documents, (4) DB breached its post-EOD prudent
person duties both for EODs that DB actually declared and EODs
that it should have declared, and (5) DB had a duty to monitor
servicers and failed to do so.
First, in view of the conclusions above, including that the
Phoenix Light Plaintiffs lack prudential standing to assert any
claims, many of the Plaintiffs’ arguments are moot.
Second, with respect to the Plaintiffs’ motion for summary
judgment declaring that certain EODs occurred, it is notable
that whether an EOD occurred in a particular Trust is not
dispositive of any claim without a further finding that DB
breached some post-EOD duty. As with DB’s request that the Court
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find that EODs did not occur, the Plaintiffs’ request that the
Court find that EODs did occur should be rejected in view of the
disputed material facts in the record.
Third, as discussed above, even assuming that EODs were
triggered in certain trusts, whether DB’s conduct was “prudent”
cannot be resolved on this motion for summary judgment. DB
reasonably argues that pursuing remedies against warrantors or
servicers would be costly, and that such costs would ultimately
be borne by the certificateholders and thus could potentially
depress certificateholders’ returns. And evidence in the record
demonstrates that circumstances could arise where investors
(particularly with Certificates from different tranches) might
have divergent interests. See, e.g., P-CSUF-Reply ¶ 35.
The Plaintiffs must show at trial that EODs (other than the
Declared EODs) occurred. The Plaintiffs must also prove that
DB’s actions fell below those of a prudent person for each
Trust, under the circumstances of that Trust. That burden has
not been met at this stage, and the Court declines the
Plaintiffs’ request to issue advisory rulings on whether certain
GA provisions were triggered, breached, or satisfied as a matter
of law.
CONCLUSION
The Court has considered all of the arguments of the
parties. To the extent not specifically addressed above, the
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remaining arguments are either moot or without merit. For the
reasons explained above, DB's supplemental motion for summary
judgment is granted. DB's motions for summary judgment in the
Phoenix Light Action and in the Commerzbank Action are granted
in part and denied in part. The Plaintiffs' motion for partial
summary judgment is denied.
The Clerk is directed to enter judgment dismissing the
Phoenix Light Action (14-cv-10103). The Clerk is directed to
close all pending motions in the Phoenix Light Action (14-cv10103).
The Clerk is directed to close all pending motions in the
Commerzbank Action (15-cv-10031) and to lift the stay in that
action. The parties in the Commerzbank Action are directed to
submit a proposed Phase 2 scheduling order with respect to the
outstanding claims in that action by February 25, 2022.
SO ORDERED.
Dated:
New York, New York
February jl_, 2022
_JJohn G. Koeltl
United States District Judge
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