On September 30, 2022, Judge Engelmayer of the SDNY in Ambac v. U.S. Bank, 17-cv-02614-PAE-KHP, issued a decision in an RMBS trustee action discussing, among other things, when claims against a trustee accrue. Here are the highlights; you should read the whole thing.
- The decision explicitly adopts the position that a claim against a trustee for failure to enforce document defects generally does not accrue until 12 years after the trust closes (the six-plus-six rule), explaining:
Thus, as to Ambac’s suit against U.S. Bank, Ambac’s theory of timeliness effectively “stacks” two limitations periods: first, the six years which U.S. Bank had in which to sue CHL, and second, the six years which Ambac thereafter had to sue U.S. Bank for failing to do so. Ambac filed this lawsuit on April 11, 2017, exactly 12 years after April 11, 2005-the day U.S. Bank received the exception report for the earliest closing Trust. Ambac’s April 11, 2017 filing is within 12 years as measured from the day CHL assertedly failed to cure-the trigger for U.S. Bank’s enforcement duty.
The Court holds, with Ambac, that the duty to enforce is controlling for the purposes of measuring the timeliness of Ambac’s suit against U.S. Bank. To be sure, as U.S. Bank notes, its duty to enforce is entwined with its antecedent duty of notice. Both arise from PSA Section 2.03(a). And compliance with the former (notice) is prerequisite to compliance with the latter (enforcement), in that, before “enforcing,” U.S. Bank needed to have notified CHL of the document exceptions and given CHL an opportunity to cure. Only 90 days after giving such notification-which U.S. Bank never did-was U.S. Bank required to “enforce” the duty (had CHL not cured). Ambac’s theory of breach thus posits a pair oflapses by U.S. Bank: Had U.S. Bank “promptly notif{ied]” CHL of the document exceptions, and had CHL failed to cure, then U.S. Bank would have had six years to “enforce” the obligation by bringing putback actions against CHL, which it failed to do. But that Ambac’s theory posits sequential breaches does not support holding the earlier of the two as setting the trigger for legal action by Ambac. Such would conflate the two alleged breaches. And it would unfairly prejudice Ambac, by allowing U.S. Bank to leverage its earlier breach to set an earlier claim-accrual date than would otherwise apply to its breach of its duty to enforce.
(Internal citations omitted).
- The court rejected U.S. Bank’s argument that its duty to enforce did not include a duty to bring repurchase actions.
- The court rejected U.S. Bank’s argument that it was obligated to enforce no later than the Determination Date following the 90 day period the Originator had to cure.
- The court rejected U.S. Bank’s argument that Ambac’s post-EoD claims were untimely on the same grounds.
- The court rejected U.S. Bank’s argument that Ambac’s post-EoD breach of fiduciary duty claims were untimely to the extent they were based on U.S. Bank’s failure to notify Ambac of EoDs less than three years before Ambac sued U.S. Bank.
- The court rejected U.S. Bank’s argument that Ambac’s post-EoD breach of fiduciary duty claims were waived.
- The court rejected U.S. Bank’s argument that Ambac’s post-EoD breach of fiduciary duty claims were barred by the economic loss doctrine.
- The court granted Ambac summary judgment dismissing U.S. Bank’s mutual mistake, waiver and estoppel affirmative defenses.
Congratulations to Ambac’s counsel for an excellent result!