Justice Judith J. Gische

 

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Plaintiffs NMC Residual Ownership LP and Caycorp Holdings Ltd. held residual security interests in REMIC trusts holding mortgage loans. They were entitled to the proceeds of the disposition of any asset remaining in terminated REMICs after each regular security holder class was paid. In 2016 Manhattan Supreme Court dismissed plaintiffs’ breach action alleging that in terminating certain trusts, indenture trustee U.S. Bank realized a profit exceeding $3 million, which it did not distribute to plaintiffs, from its forward sale of trust assets bought in its own name for less than market value. Finding plaintiffs stated a viable cause of action, First Department held their contract breach action should not have been dismissed. Noting that the trust documents did not give U.S. Bank the express right to buy trust assets for its own financial benefit at less than market value, First Department concluded plaintiffs had a valid claim that the trustee’s actions created a conflict of interest prohibited under the operative trust agreements and violating its contractual obligations. However, First Department concluded that supreme court properly dismissed plaintiffs’ claims of anticipatory breach and breach of the implied covenant of good faith and fair dealing.

Justice Judith J. Gische

 

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Plaintiffs NMC Residual Ownership LP and Caycorp Holdings Ltd. held residual security interests in REMIC trusts holding mortgage loans. They were entitled to the proceeds of the disposition of any asset remaining in terminated REMICs after each regular security holder class was paid. In 2016 Manhattan Supreme Court dismissed plaintiffs’ breach action alleging that in terminating certain trusts, indenture trustee U.S. Bank realized a profit exceeding $3 million, which it did not distribute to plaintiffs, from its forward sale of trust assets bought in its own name for less than market value. Finding plaintiffs stated a viable cause of action, First Department held their contract breach action should not have been dismissed. Noting that the trust documents did not give U.S. Bank the express right to buy trust assets for its own financial benefit at less than market value, First Department concluded plaintiffs had a valid claim that the trustee’s actions created a conflict of interest prohibited under the operative trust agreements and violating its contractual obligations. However, First Department concluded that supreme court properly dismissed plaintiffs’ claims of anticipatory breach and breach of the implied covenant of good faith and fair dealing.