Phx. Light SF Ltd. v. Deutsche Bank Nat'l Trust Co.

Citation585 F.Supp.3d 540
Decision Date08 February 2022
Docket Number14-cv-10103 (JGK), 15-cv-10031 (JGK)
Parties PHOENIX LIGHT SF LTD., et al., Plaintiffs, v. DEUTSCHE BANK NATIONAL TRUST CO. and Deutsche Bank Trust Company Americas, Defendants. Commerzbank AG, Plaintiff, v. Deutsche Bank National Trust Co. and Deutsche Bank Trust Company Americas, Defendants.
CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

David H. Wollmuth, Melissa Ann Finkelstein, Michael Christopher Ledley, Randall R. Rainer, Steven Sanford Fitzgerald, Alexandra Carin Spina, Christopher Jon Lucht, Dillon Stern, John Richard Hein, Nicole Marie Clark, Paul DeFilippo, Philip Ransom Schatz, Roselind Franciska Hallinan, Scott C. Ferrier, Sean Patrick McGonigle, William Andrew Maher, Ashley Ann Cardenas, C/O Wollmuth Maher & Deutsch LLP, Daniel Alexander Field, Herrick Feinstein LLP, Michael Christopher Ward, Barton LLP, New York, NY, George A. Zelcs, Pro Hac Vice, John Anton Libra, Matthew Davies, Pro Hac Vice, Korein Tillery, LLC, Chicago, IL, Stephen M. Tillery, Pro Hac Vice, Korein Tillery, LLC, St. Louis, MO, Jay Stuart Handlin, Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, Los Angeles, CA, for Plaintiffs Phoenix Light SF Limited in 14-cv-10103 (JGK), C-Bass CBO XIV Ltd. in 14-cv-10103 (JGK), C-Bass CBO XVII Ltd. in 14-cv-10103 (JGK), Kleros Preferred Funding V Plc in 14-cv-10103 (JGK), Silver Elms CDO plc in 14-cv-10103 (JGK), Silver Elms CDO II Limited in 14-cv-10103 (JGK), Blue Heron Funding IX Ltd. in 14-cv-10103 (JGK).

Alexandra Carin Spina, Christopher Jon Lucht, Dillon Stern, John Richard Hein, Michael Christopher Ledley, Nicole Marie Clark, Paul DeFilippo, Philip Ransom Schatz, Randall R. Rainer, Roselind Franciska Hallinan, Scott C. Ferrier, Sean Patrick McGonigle, Steven Sanford Fitzgerald, William Andrew Maher, David H. Wollmuth, Ashley Ann Cardenas, C/O Wollmuth Maher & Deutsch LLP, Daniel Alexander Field, Herrick Feinstein LLP, Michael Christopher Ward, Barton LLP, New York, NY, George A. Zelcs, John Anton Libra, Matthew Davies, Korein Tillery, LLC, Chicago, IL, Jay Stuart Handlin, Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, Los Angeles, CA, for Plaintiffs Blue Heron Funding V Ltd. in 14-cv-10103 (JGK), Blue Heron Funding VI Ltd. in 14-cv-10103 (JGK), Blue Heron Funding VII Ltd. in 14-cv-10103 (JGK).

Bernard J. Garbutt, III, Bryan P. Goff, Grant R. MacQueen, Jonathan Herman Levy, Kevin James Biron, Michael James Ableson, Michael Stephan Kraut, Regina Schaffer-Goldman, Brian A. Herman, Steven G. Brody, Morgan, Lewis and Bockius LLP, Motty Shulman, Fried, Frank, Harris, Shriver & Jacobson LLP, Paul Fattaruso, II, Cyrulnik Fattaruso LLP, New York, NY, Barry Joel Pollack, Robbins, Russell, Englert, Orseck & Untereiner, Charles McAleer, F.B., Jr., Miller & Chevalier Chartered, Washington, DC, Christopher Michael Wasil, Morgan, Lewis & Bockius, Hartford, CT, Cristina Ashba, Joseph Edward Floren, Phillip J. Wiese, Homaira Hosseini, Rachael Catherine Chan, Rollin Bernard Chippey, Morgan Lewis & Bockius LLP, San Francisco, CA, Robin Ann Henry, Boies, Schiller & Flexner LLP, Armonk, NY, for Defendant Deutsche Bank National Trust Company in 14-cv-10103 (JGK).

Brian A. Herman, Jonathan Herman Levy, Kevin James Biron, Morgan, Lewis & Bockius LLP, New York, NY, Joseph Edward Floren, Morgan, Lewis & Bockius LLP, San Francisco, CA, for Defendant Deutsche Bank Trust Company Americas in 14-cv-10103 (JGK).

Alexandra Carin Spina, Bridget Elizabeth Croutier, Christopher Jon Lucht, Dillon Stern, John Richard Hein, Philip Ransom Schatz, Roselind Franciska Hallinan, Scott C. Ferrier, Sean Patrick McGonigle, Steven Sanford Fitzgerald, David H. Wollmuth, Ashley Ann Cardenas, Ryan Anthony Kane, C/O Wollmuth Maher & Deutsch LLP, Daniel Alexander Field, Herrick Feinstein LLP, New York, NY, Jay Stuart Handlin, Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, Los Angeles, CA, for Plaintiff in 15-cv-10031 (JGK).

Brian A. Herman, Kevin James Biron, Michael Stephan Kraut, Bryan P. Goff, Jonathan Herman Levy, Michael James Ableson, Steven G. Brody, Morgan, Lewis & Bockius LLP, Motty Shulman, Fried, Frank, Harris, Shriver & Jacobson LLP, Paul Fattaruso, II, Cyrulnik Fattaruso LLP, New York, NY, Barry Joel Pollack, Robbins, Russell, Englert, Orseck & Untereiner, Charles McAleer, F.B., Jr., Pro Hac Vice, Miller & Chevalier Chartered, Washington, DC, Christopher Michael Wasil, Morgan, Lewis & Bockius, Hartford, CT, Elizabeth Herrington, Morgan, Lewis & Bockius LLP, Chicago, IL, Joseph Edward Floren, Pro Hac Vice, Morgan, Lewis & Bockius LLP, San Francisco, CA, Robin Ann Henry, Boies, Schiller & Flexner LLP, Armonk, NY, for Defendant Deutsche Bank National Trust Company in 15-cv-10031 (JGK).

Brian A. Herman, Jonathan Herman Levy, Kevin James Biron, Morgan, Lewis & Bockius LLP, New York, NY, Charles McAleer, F.B., Jr., Pro Hac Vice, Miller & Chevalier Chartered, Washington, DC, Joseph Edward Floren, Pro Hac Vice, Morgan, Lewis & Bockius LLP, San Francisco, CA, for Defendant Deutsche Bank Trust Company Americas in 15-cv-10031 (JGK).

OPINION AND ORDER

JOHN G. KOELTL, District Judge:

These actions, like others before them, were brought by investors in residential mortgage-backed securities ("RMBS") seeking to recover losses sustained following the collapse of the United States real estate market more than a decade ago. In this case, RMBS certificateholders brought claims against RMBS trustees alleging that the trustees breached their contractual, fiduciary, statutory, and common law duties. Specifically, Phoenix Light SF DAC ("Phoenix Light"), Blue Heron Funding V Ltd., Blue Heron Funding VI Ltd., Blue Heron Funding VII Ltd., Blue Heron Funding IX Ltd., C-Bass CBO XVII Ltd., Kleros Preferred Funding V PLC, Silver Elms CDO PLC, and Silver Elms CDO II Limited (collectively, "Phoenix Light Plaintiffs") and Commerzbank (together with the Phoenix Light Plaintiffs, the "Plaintiffs"), as certificateholders of RMBS, brought claims against RMBS trustees, Deutsche Bank National Trust Co. ("DBNTC") and Deutsche Bank Trust Company Americas ("DBTCA," together with DBNTC, "DB"), asserting claims for violations of the Trust Indenture Act of 1939 ("TIA") and the New York Streit Act, breaches of contractual and fiduciary duties and the covenant of good faith, as well as negligence and gross negligence. The Plaintiffs’ claims arise out of certificates (the "Certificates") issued by 85 RMBS trusts (the "Trusts") for which DB was the trustee. The Phoenix Light Plaintiffs’ claims are based on RMBS Certificates issued by 43 Trusts; Commerzbank's claims are based on Certificates issued by 50 Trusts, with Certificates from eight Trusts in common with the Phoenix Light Plaintiffs. After the Court granted in part and denied in part motions to dismiss by DB in both cases, the Phoenix Light Plaintiffs submitted a Third Amended Complaint, Commerzbank submitted a Second Amended Complaint, and the parties proceeded to the first phase of discovery.

DB then filed a motion for summary judgment pursuant to Federal Rule of Civil Procedure 56 in each action. The Plaintiffs filed a single, joint motion for partial summary judgment in both actions.1 DB also filed a supplemental motion for summary judgment in the Phoenix Light Action following the decision by the Court of Appeals for the Second Circuit in Phoenix Light SF DAC v. U.S. Bank Nat'l Ass'n, 2021 WL 4515256 (2d Cir. Oct. 4, 2021). For the following reasons, DB's motions for summary judgment are granted in part and denied in part . DB's supplemental motion for summary judgment is granted. The Plaintiffsmotion for partial summary judgment is denied .

I. Background

The following facts are based on the parties’ Local Civil Rule 56.1 statements, counterstatements, and supporting papers, and are undisputed unless otherwise noted. The Court assumes familiarity with RMBS in general, the RMBS securitization process, and the roles of the various entities (such as the sponsor, seller, servicer, and trustee) in RMBS trusts, as well as its prior opinions in both actions. See Commerzbank AG v. Deutsche Bank Nat'l Tr. Co., 234 F. Supp. 3d 462 (S.D.N.Y. 2017) (" CB MTD Order"); Phoenix Light SF Ltd. v. Deutsche Bank Nat'l Tr. Co., 172 F. Supp. 3d 700 (S.D.N.Y. 2016) (" PL MTD Order").2

A. RMBS

RMBS are certificates or notes that provide investors with returns depending on the performance of the underlying mortgage loan pool, often held in an RMBS trust.3 PlaintiffsCombined Statement of Undisputed Facts ("P-CSUF") ¶¶ 10, 20. Generally, in an RMBS securitization transaction, mortgage loans, underwritten and made by "originators," are conveyed to a "sponsor" or "seller" who collects the mortgage loans into a "pool," which is then conveyed to a "depositor." DB's Reply to the Phoenix Light Plaintiffs’ Responses to DB's Statement of Undisputed Facts ¶ 1 ("PL-RSUF"). The depositor then conveys the loan portfolio to a trust or RMBS trustee and the right to receive income from the principal and interest payments from the portfolio is parceled into certificates and sold to investors. Id. In connection with the conveyance of the pool of mortgage loans, originators and/or sponsors make representations and warranties ("R&Ws") regarding the quality and character of the mortgage loan pools and the nature of their underwriting. P-CSUF ¶ 30. Finally, servicers are tasked with collecting payments on the mortgages and enforcing loan terms, including foreclosing on the property that secures the underlying mortgage loans if a borrower defaults. See Plaintiffs’ Revised Responses to DB's Counter-Statement of Undisputed Facts ¶¶ 50-51 ("P-CSUF-Reply"); Biron PL-Ex. 43; Biron CB-Ex. 43. For 12 of the Phoenix Light Plaintiffs Trusts and 21 of the Commerzbank Trusts, a "Master Servicer" was appointed and tasked with monitoring the performance of other servicers. Biron PL-Ex. 44; Biron CB-Ex. 44.

B. The Trusts

The terms of an RMBS securitization trust, including the powers and duties of the trustees...

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