On October 15, the U.S. District Court for the Southern District of New York held that the NCUA may substitute a new plaintiff to represent the agency’s claims in a residential mortgage-backed securities (RMBS) action against an international bank serving as an RMBS trustee. In the same order, the court dismissed certain tort claims, but allowed claims for breach of contract to move forward against the trustee.
According to the opinion, NCUA brought the action on behalf of 97 trusts for which the international bank served as the trustee, even though NCUA only had direct interest in eight of the trusts. NCUA argued it had derivative standing to pursue the claims on behalf of the other 89 trusts “on the theory that it had a latent interest in the [the 89 trusts] after they wound down and as ‘an express third-party beneficiary under the [89 trusts] Indenture Agreements.’” The trustee moved to dismiss the action and after hearing oral arguments on the motion, the court stayed the case pending the outcome of NCUA’s appeal regarding derivative standing in similar action before the U.S. Court of Appeals for the Second Circuit. In August 2018, the 2nd Circuit held that NCUA lacked standing to bring the derivative claims because the trusts had granted the right, title, and interest to their assets, including the RMBS trusts, to the Indenture Trustee. (Previously covered by InfoBytes here.) Based on the appellate court decision in the similar action, NCUA moved to file a second amended complaint and substitute a newly appointed trustee as plaintiff for the claims made on behalf of the 89 trusts for which it did not have direct standing.
Despite the trustee’s objections, the district court granted NCUA’s request, concluding that NCUA’s claims were timely and allowing the NCUA’s “Extender Statute”—which gives the agency the ability to bring contract claims at “the longer of” “the 6-year period beginning on the date the claim accrues” or “the period applicable under State law”—to apply to the new substitute plaintiff. Additionally, the court denied the bank’s motion to dismiss NCUA’s breach of contract claim alleging the trustee had notice of the defects in the mortgage files held in the various trusts. The court concluded that NCUA sufficiently plead that the trustee “did indeed receive notice [of the defective mortgages] and should have thus acted,” under the Pooling and Servicing Agreements.