A plaintiff trustee is time-barred from pursuing a repurchase claim against the sponsoring bank of a residential mortgage loan securitization due to the six-year statute of limitations for breach of contract actions, a unanimous Appellate Division, First Department panel ruled Thursday.
In a reversal of a May 14 ruling by Manhattan Supreme Court Justice Shirley Kornreich, a four-judge panel held in Ace Securities v. Deutsche Bank Structured Products, 650980/2012, that the statute of limitations for repurchase actions in mortgage-backed securities litigation begins on the closing date of the purchase agreement, not on the date the demand for repurchase was made and rejected.
The trustee in this action sued Deutsche Bank, the sponsoring institution, for breach of representations and warranties of the quality of underlying mortgage loans included in a 2006 securitization. The trustee alleges it suffered more than $330 million in losses on non-performing mortgage loans and argued the sponsor should repurchase those loans.
Deutsche Bank argued that the breach of contract action was untimely since it was filed more than six years after the signing of the mortgage loan purchase agreement.
The First Department’s unsigned opinion settles a conflict that arose in the Commercial Division earlier this year when Kornreich and Supreme Court Judge O. Peter Sherwood, just days apart, reached differing conclusions on the statute of limitations issue. In Nomura Asset Assurance v. Nomura Credit & Capital, 653541/2011, Sherwood held in a May 10 decision that the statute of limitations in repurchase claims runs from the closing date of the mortgage loan purchase agreement.
The appellate panel, consisting of Justices Peter Tom, Richard Andrias, Leland DeGrasse and Rosalyn Richter, said the trial court in Ace “erred in finding that plaintiff’s claims did not accrue until defendant either failed to timely cure or repurchase a defective mortgage loan.”
“To the contrary, the claims accrued on the closing date of the MLPA, March 28, 2006, when any breach of the representations and warranties contained therein occurred,” the decision stated.
The statute of limitations issue is a common thread in at least a dozen other pending RMBS put-back actions collectively involving several billions of dollars in the Commercial Division. Thursday’s appellate ruling throws the future of those actions in doubt.
David Woll, partner at Simpson Thacher & Bartlett, counsel to Deutsche Bank in the Ace matter, declined to comment.
Plaintiff’s counsel Marc Kasowitz of Kasowitz, Benson, Torres & Friedman said in a statement to CLI that he is “confident the First Department’s decision will be reveresd on appeal.”
“We respectfully disagree with the First Department’s decision. Justice Kornreich’s decision was well-reasoned and thorough and should have been upheld,” Kasowitz said.
The ruling means the claims in Ace will be prone to dismissal with prejudice.
In this action, the certificate holders of the mortgage loan brought an initial action against Deutsche Bank on March 28, 2012, the last day of the six-year statute of limitations period. The trustee was substituted in as plaintiff and filed an action on Sept. 13.
The appellate panel held that the 60-day cure period and 90-day repurchase period had not yet elapsed when the certificate holders filed their action but even so, it did not matter since the certificate holders lacked standing to bring suit under the no-action clause of the purchase agreement, reaffirming its 2012 decision in Walnut Place v. Countrywide Home Loans, 96 AD3d 684.
The panel also held that the substitution does not make the complaint timely because the relationship between the certificate holders and trustee was not sufficient to establish an affiliation.
The First Department heard oral arguments on Nov. 27 after attorneys at Simpson Thacher appealed Kornreich’s ruling denying Deutsche Bank’s motion to dismiss the complaint.
The Nomura action, in which Sherwood dismissed the plaintiff’s repurchase claim, is also pending before the First Department. Kasowitz also represents the plaintiff in that matter.
Joseph Frank, a partner at Orrick, Herrington & Sutcliffe, represents the defendant in Nomura. He could not be reached for comment to weigh in on the Ace ruling.