ACE Sec. Corp. v. DB Structured Prods., Inc.

• Decision Date: 29 March 2016
• Docket Number: 651854/2014
• Citation: 52 Misc.3d 343,2016 N.Y. Slip Op. 26105,29 N.Y.S.3d 139
• Parties: ACE SECURITIES CORP., Home Equity Loan Trust, Series 2006–SL2, by HSBC Bank USA, National Association, solely in its capacity as Trustee pursuant to a Pooling and Servicing Agreement, dated as of March 1, 2006, Plaintiff, v. DB STRUCTURED PRODUCTS, INC., Defendant.
• Court: New York Supreme Court

52 Misc.3d 343

29 N.Y.S.3d 139

2016 N.Y. Slip Op. 26105

ACE SECURITIES CORP., Home Equity Loan Trust, Series 2006–SL2, by HSBC Bank USA, National Association, solely in its capacity as Trustee pursuant to a Pooling and Servicing Agreement, dated as of March 1, 2006, Plaintiff,

v.DB STRUCTURED PRODUCTS, INC., Defendant.

651854/2014

Supreme Court, New York County.

March 29, 2016.

Zachary W. Mazin, Uri A. Itkin, and Christopher P. Johnson of Kasowitz, Benson, Torres & Friedman LLP, New York, Counsel for the Plaintiff.

David J. Woll, Thomas C. Rice, and Isaac M. Rethy of Simpson Thacher & Bartlett LLP, New York, Counsel for the Defendant.

MARCY S. FRIEDMAN

, J.

This residential mortgage-backed securities (RMBS) breach of contract action is the current incarnation of the dismissed action that was the subject of the Court of Appeals' recent decision in Ace Securities Corp. v. DB Structured Products, Inc., 25 N.Y.3d 581, 15 N.Y.S.3d 716, 36 N.E.3d 623 (2015)

(ACE

III), affg.

112 A.D.3d 522, 977 N.Y.S.2d 229 (1st Dept.2013) (ACE II), revg. 40 Misc.3d 562, 965 N.Y.S.2d 844 (Sup.Ct., N.Y. County) (ACE I ). The prior action was initiated on the last day of the limitations period, by the filing of a summons with notice by certificateholders that were investment funds holding 25% of the voting rights in the RMBS Trust. Prior to commencement of the action, the certificateholders had served a repurchase demand on defendant DB Structured Products, Inc. (DBSP), the Sponsor of the securitization, but the time to comply with the demand had not expired before the summons with notice was filed. The Trustee, HSBC Bank USA, National Association (HSBC), subsequently sought to substitute as plaintiff, by filing the complaint nearly six months after the statute of limitations had expired. The trial court (Kornreich, J.) denied a motion by defendant DBSP to dismiss the prior action. This determination was reversed by the Appellate Division. The Appellate Division determination was then affirmed by the Court of Appeals. While the ACE III appeal was pending, this new action was commenced by the Trustee.¹

Defendant DBSP moves to dismiss this action as untimely. The sole issue on the motion is whether the new action, which would otherwise be barred by the statute of limitations, is entitled to the benefit of the CPLR 205(a)

savings provision.

CPLR 205(a)

provides:

“New action by plaintiff. If an action is timely commenced and is terminated in any other manner than by a voluntary discontinuance, a failure to obtain personal jurisdiction over the defendant, a dismissal of the complaint for neglect to prosecute the action, or a final judgment upon the merits, the plaintiff, or, if the plaintiff dies, and the cause of action survives, his or her executor or administrator, may commence a new action upon the same transaction or occurrence or series of transactions or occurrences within six months after the termination provided that the new action would have been timely commenced at the time of commencement of the prior action and that service upon defendant is effected within such six-month period.”

It is undisputed that the prior and new actions are based on the same transactions, as they both allege breaches by defendant Sponsor of representations and warranties regarding the mortgage loans underlying the securitization. The parties dispute whether the Trustee is a plaintiff within the meaning of CPLR 205(a)

and whether the prior action was terminated as untimely.

This court's holdings are as follows: First, the action must be dismissed, as the Trustee is not, under the circumstances of this case, a “plaintiff” entitled to avail itself of the benefits of the CPLR 205(a)

savings provision. In the alternative, the Trustee's resort to CPLR 205(a) is not barred by the Court of Appeals' ACE III dismissal of the first action on the ground that the plaintiff failed to satisfy a repurchase demand condition precedent prior to commencing the first action. The Court of Appeals' dismissal based on the failure to satisfy this condition precedent was not a statute of limitations dismissal or, put another way, was not a determination that the first action was untimely commenced because this condition precedent was not satisfied—i.e., the cure and repurchase periods did not lapse—prior to the expiration of the statute of limitations. Moreover, under governing law, CPLR 205(a) is not rendered unavailable because the repurchase demand condition precedent was not satisfied within the limitations period. The Appellate Division's standing and substitution holdings in ACE II did, however, determine that the Trustee's complaint in the prior action did not relate back to the certificateholders' summons with notice, and therefore was not timely filed. As the action was untimely under these Appellate Division holdings, which were not reached by the Court of Appeals and by which this court remains bound, relief is not available to the Trustee under CPLR 205(a).²

The Trustee As CPLR 205(a) Plaintiff

Reliance Insurance Co. v. PolyVision Corp., 9 N.Y.3d 52, 845 N.Y.S.2d 212, 876 N.E.2d 898 (2007)

provides the most comprehensive recent guidance by the Court of Appeals as to the circumstances in which a plaintiff may avail itself of CPLR 205(a) to avoid the bar of the statute of limitations, where a different but related plaintiff filed the original action within the statute of limitations, and the action was dismissed due to a defect in the original plaintiff's capacity or standing. In Reliance, the Court of Appeals answered the following certified question from the Second Circuit: “Does New York CPLR § 205(a)

allow a corporation to refile an action within six months when a previous, timely-filed action has mistakenly been commenced in the name of a different, related corporate entity, and has been dismissed for naming the wrong plaintiff?” (Id. at 56, 845 N.Y.S.2d 212, 876 N.E.2d 898.)

In holding that CPLR 205(a)

was unavailable to the parent corporation of the original plaintiff, the Court of Appeals endorsed the reasoning of the federal District Court that “[t]he common thread running through cases applying CPLR 205 in cases where the error in the dismissed action lies only in the identity' of the plaintiff, is the fact that it is the same person or entity whose rights are sought to be vindicated in both actions.... [T]he plaintiff in the new lawsuit may appear in a different capacity, such as a duly appointed administrator, but the identity of the individual on whose behalf redress is sought, [must] remain [ ] the same.” (Id. at 57, 845 N.Y.S.2d 212, 876 N.E.2d 898 [quoting 390 F.Supp.2d 269, 273 [E.D.N.Y.2005] ] [brackets in original].)

Summarizing the text of CPLR 205(a)

, the Reliance Court “note[d] that the benefit provided by the section is explicitly, and exclusively, bestowed on the plaintiff' who prosecuted the initial action.” (Id. ) The Court also noted that George v. Mt. Sinai Hospital, 47 N.Y.2d 170, 179, 417 N.Y.S.2d 231, 390 N.E.2d 1156 (1979) permitted a new action to proceed under CPLR 205(a) where the new action was filed by an administrator after dismissal of a prior action that had been improperly commenced in a decedent's name after her death. (Reliance, 9 N.Y.3d at 57, 845 N.Y.S.2d 212, 876 N.E.2d 898.) Distinguishing George, the Reliance Court stated: “Outside of this representative context, we have not read the plaintiff' to include an individual or entity other than the original plaintiff.” (Id. ) As the Court of Appeals in George explained and Reliance reaffirmed: “Usually, of course, the fact that one party commenced an action which is subsequently dismissed, will not serve to justify application of [CPLR 205(a)

] so as to support a later action by a different claimant. Where, however, as here, the claim is the same, and the subsequent claimant is acting as the representative of the named plaintiff in the prior action,” 205(a) is applicable. (George, 47 N.Y.2d at 179, 417 N.Y.S.2d 231, 390 N.E.2d 1156 ; Reliance, 9 N.Y.3d at 57, 845 N.Y.S.2d 212, 876 N.E.2d 898 [quoting the statement from George that CPLR 205(a) will not “usually” apply to an action commenced by a different party after dismissal of the first action].)

In holding that CPLR 205(a)

was unavailable to the corporate parent of the plaintiff in the dismissed original action, the Reliance Court cautioned: “To allow [the parent] to proceed also would open a new tributary in the law, presumably available to individuals as well as corporations, and breathe life into otherwise stale claims.... We are, moreover, mindful of the potential ramifications of a rule allowing a different, related corporate entity' the benefit of the statutory grace period, not knowing precisely what that means or portends. What may be a genuine corporate twin or alter ego in one case could be a far-flung affiliate in another.” (Reliance, 9 N.Y.3d at 58, 845 N.Y.S.2d 212, 876 N.E.2d 898.)

Here, as defendant correctly argues, the new Trustee plaintiff is not simply appearing in a different capacity than the original certificateholder plaintiffs. Nor is the Trustee acting for the certificateholders in a representative capacity analogous to that of an administrator for a decedent's estate who succeeds to the decedent's cause of action. (See EPTL § 11–3.1

[permitting actions, other than for injury to person or property, to be maintained by and against personal representative of decedent, “in such manner as such action might have been maintained by or against his decedent”]; § 11–3.2 [providing that decedent's cause of action for injury to person or property survives decedent's death and action for such injury may be continued by decedent's personal representative].)

The certificateholders are the beneficiaries of the Trust and, in a general sense, are represented by the Trustee to the extent that they are or will be the ultimate beneficiaries of successful litigation commenced by the Trustee on behalf of the Trust. However,...