On May 25, 2022, Justice Chan of the New York County Commercial Division issued a decision in Park Royal I LLC v. HSBC Bank USA, N.A., 2022 NY Slip Op. 31715(U), holding that the lack of a Cede & Co. authorization when an action was filed was a curable defect in standing and was not a basis for dismissal, explaining:
As a threshold matter, defendant argues that plaintiffs lack standing to bring their claims. Defendant contends that, technically, plaintiffs are Certificate Owners rather than Certificateholders, and the former are contractually restrained from bringing actions directly. This argument rests on the requirement in section 6.06(d) of the PSAs that the rights of the respective Certificate Owners of such Certificates shall be exercised only through the Depository and the Depository Participants.
Plaintiffs counter that they have standing since they have obtained authorizations from Certificateholder Cede & Co. to bring the actions. Defendant does not dispute that Cede & Co. is the Depository and the registered holder of the RMBS Certificates. Yet, defendant argues that the authorizations are ineffectual because the PSAs do not specifically permit the registered holder to assign its right to sue. Defendant also argues that plaintiffs’ claims should be deemed time-barred because plaintiffs obtained the Cede & Co. authorizations after the statute of limitations had expired.
Under well-established caselaw, if authorized by the registered certificateholder, a beneficial owner can directly bring an action to exercise its rights despite the negating clause. Even though the PSAs here do not specifically permit such arrangement, the authorization is still valid since no provision in the PSAs explicitly bars such assignment of rights to sue.
Here, although plaintiffs did not have standing when they filed the lawsuits, they have cured the standing defect by obtaining Cede & Co.’s authorization. At oral argument, defendant relied on two cases to argue that the Cede & Co. authorization does not relate back to the commencement of the suits. But those cases are inapplicable. The first one is a Report and Recommendation (R&R) in Phoenix Light SF Ltd. v Wells Fargo Bank, N.A., 2021 WL 7082193 (SD NY, Dec. 6, 2021). Besides its non-binding nature, the R&R reasoned that the authorizations are ineffective and cannot relate back to commencement since plaintiffs obtained the authorizations five years after defendant first challenged their standing, which was beyond a reasonable time after objection as required by Federal Rule of Civil Procedure 17(a)(3). Here, aside from the inapplicability of FRCP as applied in the R&R, plaintiffs timely obtained the Cede & Co. authorizations for all three Trusts in April, June, and August 2020 respectively as their standing was first objected in defendant’s July 6, 2020 motion. In the other case, Phoenix Light SF Ltd. v Deutsche Bank-Natl. Trust Co., 2022 WL 384748 (SD NY, Feb. 8, 2022), the district court found that the lack of standing was incurable because the plaintiff did not meet a contractual condition precedent to suit (i.e. written consent of the Bond Issuer or the occurrence of a Bond Issuer Default) and a post-filing satisfaction of the condition precedent cannot relate back. By contrast, no condition precedent to suit is present in the instant actions, and courts have consistently held that Cede & Co.’s authorization would cure certificate owners’ standing defect.
Notably, plaintiffs themselves are the only persons that have an interest in pursuing any rights or remedies under the Notes since Cede & Co., as a street name has no actual interest in the Notes beyond just holding them in the form of a Global Security for others. Accordingly, with Cede & Co.’s authorization, plaintiffs have standing to bring these actions.
(Internal quotations and citations omitted).