Here is last week’s decision on US Bank’s motion to dismiss by Justice Borrok in MLRN v. US Bank, 652712/2018, an RMBS trustee action.
Read the whole thing; here are the highlights (emphasis mine). Justice Borrok:
- Held that when it comes to RMBS cases in particular, the pleading standard on a motion to dismiss is a “low bar,” that a “plaintiff may satisfy its pleading burden with allegations that simply raise a reasonable expectation that discovery will reveal evidence proving the plaintiff’s claim,” and that “allegations of specific or systemic concerns with RMBS trusts creates a reasonable expectation that Defendant’s Responsible Officers had received written notice of Events of Default . . . .”
- Did not squarely address US Bank’s challenge to the argument that a certificateholder has twelve years to bring an action (“that US Bank had six years from the closing of each securitization to enforce the repurchase obligations and that, where US Bank breached its obligations by allowing these claims to lapse, MLRN then has an additional six years to bring any claims against US Bank for breach of such contractual obligations”) and instead, referring to the existence of class action tolling, held that the calculation of the statute of limitations was deeply factual and could not be addressed on a motion to dismiss for most of the trusts.
- Held that “knowledge to the trustee may be imputed based on its involvement with other RMBS trusts in various capacities, including serving as one of the largest RMBS servicers, being named in RMBS litigation involving similar allegations to those made here, and receiving notice of breaches with respect to other trusts for which it served as trustee as well as other high profile litigation and settlements regarding the same originators and sponsors as those involved with the Trusts.” This highlights the importance of pleading and proving all the ways a trustee may have been aware of problems with a trust’s loans and their administration.
- Recognized that some PSAs do not require written notice for there to be an EoD (“for 21 of the RMBS trusts, an EOD only requires servicer or master servicer knowledge of its breaches, i.e., no written notice is required because a servicer or master servicer’s knowledge of its failure to perform its contractual duties is enough to establish an EOD.”)
- Held that the prevention doctrine did not eliminate the need for notice to the trustee for trusts that require it. This result is compelled by recent First Department cases. We are hopeful that a court might see things differently if the inconsistency with this holding and the requirements of the Streit Act that a trustee act if there is an event of default were more squarely presented to it.
- Rejected the trustee’s reliance on the no action clauses, even when there were notice parties other than the trustee.