Justice Judith J. Gische

 

Read Full- Text Decision

Plaintiffs are the titled and beneficial holders of certain residual interests in real estate mortgage investment conduit (REMIC) trusts—consisting of pooled securities backed by residential mortgages—formed 15 years ago that were intended to conform to and receive federal tax benefits under Internal Revenue Code §860. They sued indenture trustee U.S. Bank N.A. claiming that when it exercised its otherwise valid option to terminate certain trusts early, it breached its contractual duties to plaintiffs by buying the remaining trust assets in its own name, at millions of dollars below market value. Agreeing with indenture trustee U.S. Bank’s interpretation of the operative trust agreements, Manhattan Supreme Court dismissed plaintiffs’ complaint. Finding that under the trust agreements U.S. Bank did not have the right to personally profit from the sale of trust assets, First Department reinstated plaintiffs’ viable contract breach claim. Absent an express contractual right for U.S. Bank to buy the subject remaining trust assets at less than market value—which did not exist—U.S. Bank’s actions constituted a prohibited conflict of interest because it financially benefitted the trustee at the expense of the residual security holders.

Justice Judith J. Gische

 

Read Full- Text Decision

Plaintiffs are the titled and beneficial holders of certain residual interests in real estate mortgage investment conduit (REMIC) trusts—consisting of pooled securities backed by residential mortgages—formed 15 years ago that were intended to conform to and receive federal tax benefits under Internal Revenue Code §860. They sued indenture trustee U.S. Bank N.A. claiming that when it exercised its otherwise valid option to terminate certain trusts early, it breached its contractual duties to plaintiffs by buying the remaining trust assets in its own name, at millions of dollars below market value. Agreeing with indenture trustee U.S. Bank ‘s interpretation of the operative trust agreements, Manhattan Supreme Court dismissed plaintiffs’ complaint. Finding that under the trust agreements U.S. Bank did not have the right to personally profit from the sale of trust assets, First Department reinstated plaintiffs’ viable contract breach claim. Absent an express contractual right for U.S. Bank to buy the subject remaining trust assets at less than market value—which did not exist— U.S. Bank ‘s actions constituted a prohibited conflict of interest because it financially benefitted the trustee at the expense of the residual security holders.