The last week before Labor Day was a very busy week in the RMBS litigation world!
First, on August 30, 2022, the First Department issued its decision in the IKB trustee actions. It is a long decision, but some key points are:
The decision rejected the reasoning of the First Department’s August 9, 2022, decision in Western & Southern Life Ins. Co. v U.S. Bank N.A., where it had held that the trustee’s agreement to exercise the trust’s rights did not impose a duty on the trustee to cure document defects.
Rather, in IKB, the First Department reviewed and rejected all of the reasoning of the Western & Southern court and held that where a trustee “agrees to exercise” a trust’s Article II rights, that includes the duty to cure document defects and representation and warranty breaches. It went to on to hold that such a duty exists even when explicit “agrees to exercise” language is present.
The First Department also reversed the motion court’s holding that document defect claims were time-barred, holding that when such claims accrued “cannot be decided on the pleadings,” explaining that “[t]he governing agreements did not specify how soon after the sellers’ failure to cure that defendants were required to initiate a putback action, and what would be a reasonable time, in lieu of a specified time, cannot be determined at this stage.”
There were two dissents, so this decision almost certainly will be reviewed by the Court of Appeals.
Congratulations to our former colleagues at Schlam Stone & Dolan LLP—particularly Seth Allen—and John McFerrin-Clancy, who were IKB’s counsel.
Second, there is a new (filed in July) Article 77 proceeding relating to the calculation of trust termination payments. Here is the petition, which lays out the issues. These are the affected trusts:
- ABSHE 2006-HE7
- BSABS 2005-AQ2
- BSABS 2007-AQ1 4
- 2007-NC1 5
- FFML 2005-FF9
- GPMF 2006-AR7
- HEAT 2006-8
- RFMSI 2006-HI5
Third, on August 29, 2022, Justice Borrok of the New York County Commercial Division denied Countrywide’s motion for summary judgment in Ambac v. Countrywide. Congratulations to Ambac’s counsel!