Series M v. Citibank, N.A.

• Decision Date: 16 January 2018
• Docket Number: Index 653891/15,5456
• Citation: 157 A.D.3d 541,69 N.Y.S.3d 288
• Parties: FIXED INCOME SHARES: SERIES M, et al., Plaintiffs–Respondents, v. CITIBANK, N.A., Defendant–Appellant.
• Court: New York Supreme Court — Appellate Division

157 A.D.3d 541

69 N.Y.S.3d 288

FIXED INCOME SHARES: SERIES M, et al., Plaintiffs–Respondents,

v.CITIBANK, N.A., Defendant–Appellant.

5456

Index 653891/15

Supreme Court, Appellate Division, First Department, New York.

ENTERED: JANUARY 16, 2018

Mayer Brown LLP, New York (Christopher J. Houpt of counsel), for appellant.

Bernstein Litowitz Berger & Grossman LLP, New York (Robert S. Trisotto and Timothy A. Delange of the bar of the State of California, admitted pro hac vice, of counsel), for respondents.

Friedman, J.P., Mazzarelli, Kapnick, Webber, Moulton, JJ.

Order, Supreme Court, New York County (Charles E. Ramos, J.), entered June 27, 2017, which, insofar as appealed from as limited by the briefs, denied defendant's motion to dismiss the cause of action for breach of the covenant of good faith and the breach of contract cause of action based on representations and warranties and on "robosigning," unanimously modified, on the law, to grant the motion as to the cause of action for breach of the covenant of good faith and the breach of contract cause of action based on "robosigning," and otherwise affirmed, without costs.

Plaintiffs are the holders of certificates issued by residential mortgage-backed securities trusts of which defendant is the trustee. The cause of action for breach of the implied covenant of good faith and fair dealing should be dismissed because the governing Pooling and Service Agreement (PSA) states, "[N]o implied covenants or obligations shall be read into this Agreement against the Trustee" (see STS Partners Fund, LP v. Deutsche Bank Sec., Inc., 149 A.D.3d 667, 669, 53 N.Y.S.3d 632 [1st Dept. 2017], lv dismissed in part, denied in part 30 N.Y.3d 1009, –––N.Y.S.3d ––––, ––– N.E.3d –––– [Nov. 21, 2017] ).

The contract cause of action alleges that defendant violated the PSA by failing to give written notice of certain breaches of mortgage loan representations and warranties upon its discovery of such breaches. Contrary to defendant's argument, plaintiffs were not required to allege that defendant had actual knowledge of a loan-specific breach. The PSA uses the word "discovery" in section 2.04 and the term "actual knowledge" in section 8.01, which implies that these terms have different meanings ( Platek v. Town of Hamburg, 24 N.Y.3d 688, 696, 3 N.Y.S.3d 312, 26 N.E.3d 1167 [2015] ). Nor were plaintiffs required to allege loan-specific breaches. Defendant relies on Retirement Bd. of the Policemen's Annuity & Ben. Fund of the City of Chicago v Bank of N.Y. Mellon, 775 F.3d 154 (2d Cir.2014), cert denied 577 U.S. ––––, 136 S.Ct. 796, 193 L.Ed.2d 711 (2016). However, we have concluded that Retirement Bd. does not apply to motions to dismiss for failure to state a cause of action ( Commerce Bank v. Bank of N.Y. Mellon, 141 A.D.3d 413, 414, 35 N.Y.S.3d 63 [1st Dept. 2016] ).

The breach of contract cause of action also alleges that defendant failed to provide the mortgage loan servicers with notice of robosigning (a servicing failure) and demand that the breach be remedied within a specified time period. However, section 7.01(ii) does not require defendant to give that notice to...