ACE Sec. Corp. v. DB Structured Prods., Inc.
| Docket Number | 34 |
| Decision Date | 16 June 2022 |
| Citation | 38 N.Y.3d 643,197 N.E.3d 978,176 N.Y.S.3d 590 |
| Parties | ACE SECURITIES CORP., Home Equity Loan Trust, Series 2006-SL2, by HSBC Bank USA, National Association, as Trustee Pursuant to a Pooling and Servicing Agreement, Dated as of March 1, 2006, Appellant, v. DB STRUCTURED PRODUCTS, INC., Respondent. |
| Court | New York Court of Appeals Court of Appeals |
38 N.Y.3d 643
197 N.E.3d 978
176 N.Y.S.3d 590
ACE SECURITIES CORP., Home Equity Loan Trust, Series 2006-SL2, by HSBC Bank USA, National Association, as Trustee Pursuant to a Pooling and Servicing Agreement, Dated as of March 1, 2006, Appellant,
v.
DB STRUCTURED PRODUCTS, INC., Respondent.
No. 34
Court of Appeals of New York.
Decided June 16, 2022
McKool Smith PC, New York City (Zachary W. Mazin, Christopher P. Johnson, Daniel J. Fleming and Lara Sofia Romero Jain of counsel), for appellant.
Simpson Thacher & Bartlett LLP, New York City (William T. Russell, Jr., Isaac M. Rethy and Anthony C. Piccirillo of counsel), for respondent.
Patterson Belknap Webb & Tyler LLP, New York City (Peter W. Tomlinson, David S. Kleban and Jeffrey F. Kinkle of counsel), and Korein Tillery LLP, Chicago, Illinois (John A. Libra of counsel), for National Credit Union Administration Board and another, amici curiae.
Patrick M. Connors, Albany, pro se, and Skadden, Arps, Slate, Meagher & Flom LLP, New York City (Scott D. Musoff and Alexander C. Drylewski of counsel), for Patrick M. Connors, amicus curiae.
Michael Hutter, Albany, amicus curiae pro se, and for Robert Hockett and another, amicus curiae.
Adam Plotch, amicus curiae pro se.
OPINION OF THE COURT
Chief Judge DiFIORE.
When a timely-commenced action has been dismissed on certain non-merits grounds, CPLR 205(a) allows "the plaintiff" in that action "or, if the plaintiff dies," the "executor or administrator" of the plaintiff's estate, six months to commence a new action based on the same transaction or occurrence. The new action will be deemed timely based on the commencement of the prior action. Here, after the dismissal of a prior action brought by two certificateholders (see ACE Sec. Corp., Home Equity Loan Trust, Series 2006–SL2 v. DB Structured Prods., Inc., 25 N.Y.3d 581, 15 N.Y.S.3d 716, 36 N.E.3d 623 [2015] )—and after the statute of limitations expired—plaintiff HSBC Bank USA, National Association, in its capacity as trustee of a residential mortgage-backed securities (RMBS) trust, commenced this action against the sponsor, invoking CPLR 205(a). Because HSBC was not "the original plaintiff" in the prior dismissed action ( Reliance Ins. Co. v. PolyVision Corp., 9 N.Y.3d 52, 57, 845 N.Y.S.2d 212, 876 N.E.2d 898 [2007] ), we agree with the courts below that HSBC could not invoke CPLR 205(a) to avoid dismissal of this time-barred claim, and we therefore affirm.
As these events were the subject of a prior appeal involving this trust, the facts are familiar (see ACE Sec. Corp., 25 N.Y.3d 581, 15 N.Y.S.3d 716, 36 N.E.3d 623 ). Defendant DB Structured Products, Inc., as sponsor of the underlying RMBS transaction, purchased over 8,800 mortgage loans and sold them to an affiliate, ACE Securities Corp., pursuant to a Mortgage Loan Purchase Agreement (MLPA). In the MLPA, the sponsor made various representations and warranties regarding the quality and characteristics of the pooled loans as of the closing date—March 28, 2006. ACE Securities then deposited the loans into a trust, and the loans served as collateral for approximately $500 million in certificates issued by the trust—which in turn pay principal and interest to certificateholders based on the funds generated by the underlying mortgages. Pursuant to a pooling and servicing agreement (PSA), ACE Securities transferred to HSBC as trustee all of its rights in the trust and arising under the MLPA.
The PSA contained a repurchase protocol provision that governed in the event of a breach of the relevant representations and warranties by the sponsor. Pursuant to the repurchase protocol, if HSBC—as trustee—discovered a material defect or breaching loan, it was required to "promptly notify the Sponsor and the Servicer," request that the sponsor cure within 60 days and, if not cured, the sponsor must repurchase the nonconforming loan within 90 days of HSBC's notification. In other words, through this provision, the parties agreed that the sponsor must either cure a claimed defect or repurchase a nonconforming loan, and the parties further agreed that the cure or repurchase remedy would be the "sole remedy" available to the trustee.
In January 2012, two certificateholders, RMBS Recovery Holdings 4, LLC and VP Structured Products, LLC—independent investment funds holding 25% of the trust's voting certificates—notified HSBC of breaches allegedly uncovered through a forensic review of the pooled loans. The certificateholders demanded that HSBC pursue repurchase of the entire pool by the sponsor and urged HSBC to seek a tolling agreement in light of the impending expiration of the statute of limitations. HSBC did neither. Consequently, the two certificateholders—assertedly on behalf of the trust—attempted to commence an action against the sponsor through the filing of a summons and notice in March 2012, exactly six years from the closing date, alleging breach of the representations and warranties and naming
HSBC as a nominal defendant. Six months later, following the sponsor's demand for a complaint, HSBC filed a complaint on behalf of the trust, purporting to substitute as plaintiff for the certificateholders.
The sponsor moved to dismiss, contending that HSBC's complaint was untimely and that the certificateholders’ summons with notice did not validly commence the action because they failed to comply with the sole remedy repurchase protocol before commencing suit. Supreme Court denied the sponsor's motion, reasoning that—although it was "undisputed that these certificateholders lacked standing ... under the PSA's no-action clause"—the relevant "breach" was the sponsor's failure to comply with the repurchase demand and, thus, HSBC's cause of action accrued as of that date and its complaint was timely ( 40 Misc.3d 562, 564, 568, 965 N.Y.S.2d 844 [Sup.Ct., N.Y. County 2013] ). The Appellate Division reversed and granted the sponsor's motion to dismiss, determining that any claim for breach accrued on the closing date of the RMBS transaction and HSBC's complaint—filed more than six years later (see CPLR 213[2] )—was time-barred (
112 A.D.3d 522, 977 N.Y.S.2d 229 [1st Dept. 2013] ). With respect to the certificateholders’ summons and notice, the Appellate Division concluded that the action was not validly commenced because the certificateholders failed to comply with the contractual condition precedent to suit as they did not provide the sponsor with the requisite pre-suit notice and opportunity for cure and repurchase and, in any event, the certificateholders lacked standing to sue on behalf of the trust under the PSA's "no-action" clause ( 112 A.D.3d at 523, 977 N.Y.S.2d 229 ).1
This Court affirmed (see 25 N.Y.3d 581, 15 N.Y.S.3d 716, 36 N.E.3d 623 ). We explained that any claim for breach of the representations and warranties accrued on the transaction closing date because the sponsor warrantied characteristics of the mortgage loans at the time of closing (see id. at 595, 15 N.Y.S.3d 716, 36 N.E.3d 623 ). Rejecting the argument that the sponsor's cure or repurchase obligation was a separate promise
of the loans’ future performance, we determined that the repurchase protocol was merely a contractually agreed-upon remedy for the inclusion of nonconforming loans in the trust (see id. at 595–597, 15 N.Y.S.3d 716, 36 N.E.3d 623 ). Thus, although compliance with the repurchase protocol was a "contractual condition precedent to suit," it did not affect the accrual of the cause of action and, as such, any claim for breach of the representations and warranties accrued on the closing date ( id. at 589, 15 N.Y.S.3d 716, 36 N.E.3d 623 ; see id. at 597–599, 15 N.Y.S.3d 716, 36 N.E.3d 623 ). HSBC's complaint, filed more than six years after that date (see CPLR 213[2] ), was therefore untimely. Further, although the certificateholders filed their summons with notice on the final day of the limitations period, we agreed with the Appellate Division that the "certificateholders did not validly commence th[e] action because they failed to comply with the contractual condition precedent to suit" since they did not give the sponsor the requisite notice and opportunity to cure or repurchase ( 25 N.Y.3d at 589, 15 N.Y.S.3d 716, 36 N.E.3d 623 ).2
While an appeal of the Appellate Division's dismissal of the certificateholders’ action was pending before this Court, HSBC commenced the instant action against the sponsor seeking to "revive" the certificateholders’ action pursuant to CPLR 205(a). HSBC asserted that the certificateholders’ action was timely commenced and based on the same transaction, and that it had been dismissed less than six months before on grounds that...
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