On March 10, 2022, Judge Nathan of the S.D.N.Y. issued a decision in U.S. Bank v. Goldman Sachs, 19-cv-02305-AJN, rejecting the use of sampling in an RMBS put-back action. Generally, the basis for her decision was that loans are put back loan-by-loan, so the proof must be loan-by-loan. Judge Nathan explained:
At each step, the contractual language describes a loan-specific procedure. Start with the language defining breach and material-and-adverse effects in the RWA. It states that once notified of a breach, “GSMC shall cure such breach in all material respects and, if such breach cannot be cured, GSMC shall . . . repurchase such Mortgage Loan at the Repurchase Price.”
And to trigger GSMC’s repurchase obligation, a breach of a representation or warranty must materially and adversely affect the particular loan’s value. This determination in the underwriting and reunderwriting process is necessarily loan-specific. The parties dispute whether underwriting can be considered a subjective or objective inquiry. But U.S. Bank does not dispute that the
informational inputs change from loan to loan, including the loan’s originator, the borrower, and the property that was mortgaged.Further, the remedies available to U.S. Bank under the RWA in the event of breach are loan-specific. If Goldman does not cure a breach, it must “repurchase or substitute for a Mortgage Loan in breach of a representation or warranty.” Here, U.S. Bank seeks damages in the amount of the Repurchase Price. Like breach and material-and-adverse effect, the PSA defines the repurchase price in the singular as to any Mortgage Loan. And the repurchase price depends on the individual loan, as it is a function of characteristics specific to that loan, including the unpaid principal balance, the mortgage rate, unreimbursed servicing advances, and additional expenses incurred by the parties.
In short, the contractual language consistently speaks in singular terms—that is, a breach event, the offending loan, and the repurchase price. That singular language fits within a remedial structure “that generally calls for proof of breach on a loan-by-loan basis. The Court concludes that this contractual language and structure cannot provide a wholly unambiguous basis for permitting U.S. Bank’s proposed proof by sampling.
This seems wrong to me because it ignores why courts allow sampling.
Judge Nathan acknowledges that the New York state courts to consider this question of New York law have allowed sampling, but she nonetheless went the other way, deciding that the Court of Appeals would agree with her, not the New York state judges who have considered this question in the past.