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Posted: December 12, 2017

Cause of Action for Damage to RMBS Trust Occurs Where Trust is Located

On December 5, 2017, the First Department issued a decision in Deutsche Bank Natl. Trust Co. v. Barclays Bank PLC, 2017 NY Slip Op. 08459, holding that a cause of action for damage to an RMBS trust accrues where the trust is located, explaining:

In 2013, plaintiff commenced the two above-captioned actions, each solely in plaintiff’s capacity as trustee of one of two trusts. In each action, plaintiff asserts, as relevant to this appeal, a cause of action for breach of contract based on each defendant’s alleged breaches of the representations and warranties it had made in connection with the sale, in 2007, of the residential mortgage-backed securities that are pooled in the relevant trust. Each defendant moved to dismiss the action against it, arguing, in pertinent part, that, because plaintiff’s principal place of business is in California, plaintiff’s contractual claim is barred by California’s four-year statute of limitations, pursuant to the borrowing statute (CPLR 202), although it is conceded that the claims would be timely under New York’s six-year statute of limitations. Upon defendants’ respective appeals from Supreme Court’s denial of this aspect of their motions, we reverse.

CPLR 202 requires that an action brought by a nonresident plaintiff, based upon a cause of action accruing without the state, be timely under the respective statutes of limitations of both New York and the place without the state where the cause of action accrued. In Global Fin. Corp. v Triarc Corp., the Court of Appeals set forth the general rule that, in cases where (as here) the alleged injury is purely economic, a cause of action is deemed, for purposes of CPLR 202, to have accrued in the jurisdiction of the plaintiff’s residence.

Plaintiff, a California domiciliary, argues that the plaintiff-residence rule of Global Financial — a case in which the plaintiff was a corporation suing to recover for an injury to itself — should not be applied here, where plaintiff is suing solely in its capacity as trustee of the subject trusts. Rather, plaintiff argues that we should apply the multi-factor test used in Maiden v Biehl, which also dealt with a trustee-plaintiff, to determine where the injury occurred. However, we need not decide whether the plaintiff-residence rule or the multi-factor test applies in this context because, even under the multi-factor test, we find that the injury/economic impact was felt in California and the claims are thus deemed to have accrued there.

Initially, it is undisputed that the domiciles of the trust beneficiaries, which are in various jurisdictions, do not provide a workable basis for determining the place of accrual. As to the New York choice-of-law clauses of the relevant agreements, because these provisions do not expressly incorporate the New York statute of limitations, they cannot be read to encompass that limitation period. By contrast, the subject trust in each action comprises a pool of mortgage loans, originated by California lenders and encumbering California properties, either exclusively (in the Barclays case) or predominantly (in the HSBC case), and, as previously discussed, administered in California by plaintiff, a California-based trustee. Further, it is undisputed that the relevant pooling and servicing agreement (PSA) for each trust contemplates the payment of state taxes, if any, in California. To the extent the physical location of the notes memorializing the securitized mortgage loans has relevance to the analysis, each trust’s PSA contemplates that the notes may be maintained in California, but neither contemplates maintaining the notes in New York.

(Internal quotations and citations omitted).

This decision touches on two areas of commercial litigation that are a significant part of our practice. It is not unusual for the statute of limitations to be an issue in complex commercial litigation. And the particular issue here–the rule in CPLR 202 that the statute of limitations used by a New York court sometimes is the statute of limitations of another state (or even country) is an issue our clients, which are located all over the world, sometimes face. Moreover, we are involved in a number of RMBS litigations. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding which statute of limitations applies to an action brought by a non-New York litigant or claims regarding RMBS or other asset-backed securities.

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