Commerzbank AG v. U.S. Bank Nat'l Ass'n

457 F.Supp.3d 233

COMMERZBANK AG, Plaintiff,

v.U.S. BANK NATIONAL ASSOCIATION, Defendant.

16cv4569

United States District Court, S.D. New York.

Signed April 28, 2020

Ryan Anthony Kane, Brad Jeffrey Axelrod, Bridget Elizabeth Croutier, Christian Skinner-Klee, David H. Wollmuth, Grant Bercari, Jay Gerald Safer, Jennifer Marie Thomas, Maxwell George Dillan, Melissa Ann Finkelstein, Michael Christopher Ledley, Niraj Jayant Parekh, Philip Ransom Schatz, Roselind Franciska Hallinan, Scott C. Ferrier, Sean Patrick McGonigle, Steven Sanford Fitzgerald, Wollmuth Maher & Deutsch LLP, New York, NY, for Plaintiff.

David F. Adler, Pro Hac Vice, Erik Doughty, Michael T. Marcucci, Jones Day, Boston, MA, Albert J. Rota, Andrew Steven Kleinfeld, Jones Day, Alexander Daniel Newman, Robins Kaplan LLP, New York, NY, Michael Collyard, Martin Richard Lueck, Thomas F. Berndt, Robins, Kaplan, Miller & Ciresi L.L.P., Samuel Lewis Walling, Pro Hac Vice, Jones Day, Minneapolis, MN, Joseph Cassalia Barry, Pro Hac Vice, Joseph Zachary Czerwien, Pro Hac Vice, Amanda Rose Parker, Calland Ferraro, Jeff Smith, Louis A. Chaiten, Meredith Collier, Shimshon Balanson, Jones Day, Cleveland, OH, Brittany D. Parling, Jones Day, Detroit, MI, for Defendant.

OPINION & ORDER

WILLIAM H. PAULEY III, Senior United States District Judge:

Defendant U.S. Bank National Association ("U.S. Bank") moves for summary judgment dismissing Plaintiff Commerzbank AG's claims. (ECF No. 293.) Due to the complexity of this case, the number of claims, and the demanding summary judgment standard, the parties submitted lengthy statements of undisputed facts in support of their respective positions. To characterize them as sprawling would be an understatement. Almost every statement of undisputed fact is controverted at least in part by the opposing party. The result is a staggering 1,274 pages of factual assertions supported by 1,049 exhibits. By this Court's reckoning, the parties utilized more than 430,000 words in their respective statements of undisputed facts, a word count longer than Margaret Mitchell's epic novel Gone with the Wind. For the reasons that follow, U.S. Bank's motion is granted in part and denied in part.

BACKGROUND

This Court assumes familiarity with its prior Opinion & Order and summarizes only the facts necessary to decide this motion. See Commerzbank AG v. U.S. Bank Nat'l Ass'n., 277 F. Supp. 3d 483 (S.D.N.Y. 2017).

I. Residential Mortgage-Backed Securities, Generally

This action arises from the sale of residential mortgage-backed securities ("RMBS"). RMBS are abstruse financial products that were integral to the rapid rise and precipitous fall of the U.S. housing market over a decade ago. The collapse of the housing bubble propelled the economy into a tailspin and destroyed the value of RMBS and related securities. This in turn spawned a series of investigations into the mortgage industry that unearthed a litany of abuses—deficient underwriting standards, questionable subprime lending practices, and coercive foreclosure practices, to name a few.

The ensuing financial crisis spawned a plethora of civil actions over the past decade. RMBS litigation has been a lot like musical chairs—virtually every party in the securitization process has sued or been sued by a counterparty in an unending game of blame shifting. The latest permutation involves claims against RMBS trustees. Here, Commerzbank, an investor in 56 trusts,¹ sues the RMBS trustees—U.S. Bank and Bank of America—on the theory that they had a duty to monitor, notify, and take action against the mortgage originators, sponsors, and servicers for any breaches committed under the governing trust documents.

RMBS are the product of a complex process called mortgage loan securitization. The process begins when a lender (or multiple lenders) issues mortgages (the "Originator") and sells them to another financial institution (the "Seller" or "Sponsor"). The Sponsor then pools and transfers these mortgages to an affiliated special purpose vehicle (the "Depositor"). The Depositor subsequently conveys the bundled mortgages to a trust managed by a trustee (the "Trustee"), where they are prioritized into tranches. Each tranche in the loan securitization in theory reflects a different level of risk.

The trust issues certificates (i.e., RMBS) representing those tranches to underwriters, who then market and sell the certificates to investors like Commerzbank. The certificateholder may pay more or less for a certificate depending on the perceived level of risk associated with each tranche. Because the certificates are secured by the mortgages held in trust, their expected rate of return hinges on the performance of the loans, which is in turn dependent on the borrowers' ability to repay.

The trusts are governed by a document called the Pooling and Servicing Agreement ("PSA"). Under each PSA, a servicer (the "Servicer") is appointed to manage the collection of payments on the mortgage loans. The Servicer's responsibilities consist of monitoring delinquent borrowers, checking compliance with representations and warranties in the loans, tracking mortgage documentation, foreclosing on defaulted loans, and managing and selling foreclosed properties.

The PSAs enumerate the Trustees' duties and obligations. Those duties are bifurcated into pre-Event of Default ("pre-EOD") and post-Event of Default ("post-EOD") duties.

II. Pre-Event of Default Duties

Prior to an Event of Default ("EOD"), the Trustee must receive a complete set of files associated with each mortgage in the trust. Because physical possession of the mortgage documents is necessary to transfer ownership rights of the mortgage loans from the Sponsors and Depositors to the trusts, the Trustee must review the file for each mortgage and certify that the loan documentation is accurate and complete. After a designated period, the Trustee must provide a final certification and document exception report identifying any missing documents required by the PSA. If the mortgage file has any defects, the Trustee and the Servicer must demand that the Sponsor cure the defect within a prescribed period, or repurchase or substitute the defective loan.

III. Event of Default

While many of the PSAs at issue in this action vary over what constitutes an EOD, such events generally arise when the Servicer materially breaches a servicing duty, a designated party provides written notice of the breach to the Servicer or the Servicer has actual knowledge of a breach, and the Servicer fails to cure within a specified period of time.

IV. Post-Event of Default Duties

Post-EOD duties arise after an EOD has occurred. Then, the Trustee is obligated to demand breaching deal party cure. The PSAs require the Trustee to exercise its rights and powers with the same degree of care and skill as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. This duty is owed to all certificateholders such as Commerzbank.

V. Motion to Dismiss

On November 9, 2016, U.S. Bank and Bank of America jointly moved to dismiss the Complaint. (ECF No. 89.) This Court granted U.S. Bank and Bank of America's motion as to the breach of the implied covenant of good faith and fair dealing claims, the Streit Act claims, the Trust Indenture Act claims, and claims arising from the 17 trusts² containing no-action clauses. Commerzbank, 277 F. Supp. 3d at 499–500. This Court denied the motion as to the breach of contract claims arising from both pre- and post-EOD duties, the breach of fiduciary duty claims, and the negligence claims. Commerzbank, 277 F. Supp. 3d at 500.

VI. Bank of America

On December 11, 2019, Commerzbank and Bank of America agreed to settle their claims. (ECF No. 365.) That agreement came after Bank of America fully briefed its motion for summary judgment but before oral argument. On February 19, 2020, Commerzbank voluntarily dismissed Bank of America as a defendant with prejudice. (ECF No. 386.) The dismissal of Bank of America does not whittle down any of the claims in this action against U.S. Bank. That is because Bank of America sold all 13 trusts³ for which it was the original Trustee to U.S. Bank between 2008 and 2010. (U.S. Bank's Reply and Resp. to Commerzbank's Counter-Statement of Undisputed Facts Pursuant to Local Rule 56.1, ECF No. 347 ("U.S. Bank 56.1"), ¶ 3.)

DISCUSSION

I. Legal Standard

Summary judgment is proper only where "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial." Baez v. JetBlue Airways Corp., 793 F.3d 269, 274 (2d Cir. 2015) (quotation marks omitted). This Court is not "to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial."

Cioffi v. Averill Park Cent. Sch. Dist. Bd. of Educ., 444 F.3d 158, 162 (2d Cir. 2006) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ).

"The party seeking summary judgment bears the burden of establishing that no genuine issue of material fact exists ...." Rodriguez v. City of New York, 72 F.3d 1051, 1060–61 (2d Cir. 1995). If the moving party meets its burden, "the adverse party must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 250, 106 S.Ct. 2505 (quotation marks omitted); Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009). "A party may not rely on mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment," as "conclusory allegations or denials cannot by themselves create a genuine issue of material fact where none would otherwise exist." Hicks v. Baines, 593 F.3d 159, 166 (2d Cir. 2010) (citation and alterations omitted). "In determining whether a genuine issue of material fact...