On March 17, 2022, the Court of Appeals issued a decision in U.S. Bank Natl. Assn. v. DLJ Mtge. Capital, Inc., 2022 NY Slip Op. 01866, holding that an RMBS trustee cannot rely on the relation back doctrine to avoid a pooling and servicing agreement’s pre-suit demand requirement.
The whole decision is worth reading. The majority’s decision is summarized as:
In this residential mortgage-backed securities litigation, we are again called upon to determine the proper application of a now-familiar contractual “sole remedy repurchase protocol” provision. Applying well-settled principles of contract interpretation and giving effect to the plain meaning of the contract language, the repurchase protocol requires that plaintiff trustee provide loan-specific pre-suit notice in order to invoke defendant sponsor’s repurchase obligation and satisfy the contractual prerequisite to suit. Furthermore, plaintiff trustee cannot rely on the relation back doctrine of CPLR 203 (f) to avoid the consequences of its failure to comply with the contractual condition precedent with respect to the loans in question prior to commencing this action. We also conclude that the plain language of the parties’ agreement limits interest recoverable on liquidated loans to interest that accrued prior to liquidation.
Judge Rivera summarized her dissent as:
U.S. Bank’s complaint sufficiently set forth the transactions and occurrences within the meaning of CPLR 203 (f), so that additional defective loans identified by U.S. Bank during discovery related back to the original timely filing date. In contravention of our rules of contract interpretation, the majority adopts a notice requirement more burdensome than what the parties agreed to. The Court takes one misstep further and limits the relation back doctrine in contravention of the intent and purpose of the CPLR. The majority’s holding is at odds with the obligations imposed by the RMBS agreement to remedy defective loans—obligations intended to prevent DLJ from avoiding liability for the types of egregious pool-wide violations alleged here.
One interesting point is the decision’s discussion of U.S. Bank N.A. v DLJ Mtge. Capital, Inc. (33 NY3d 72 [2019]). The majority explained that there, the trustee filed a timely put-back action, which was dismissed without prejudice “due to its failure to fully comply with the contractual” pre-suit notice requirement. Because that dismissal was a non-merits dismissal, the Court of Appeals held that under CPLR 205, the trustee could cure the failure and refile. If that was true there, why is it not true here?