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Current Developments in the Commercial Divisions of the
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Posted: June 23, 2016

RMBS Trustee Plaintiff Entitled to Reimbursment of Attorneys’ Fees From Defendant

On June 16, 2016, the First Department issued a decision in U.S. Bank N.A. v. DLJ Mortgage Capital, Inc., 2016 NY Slip Op. 04795, holding than an RMBS trustee was entitled to be reimbursed by the defendant for the trustee’s attorneys’ fees in bringing an RMBS put-back action against the defendant.

In U.S. Bank, the plaintiff alleged that the defendant breached representations and warranties “regarding the quality and characteristics of” “residential backed mortgage loans transferred to” to trusts of which the plaintiff was trustee. The trial court “dismiss[ed] the portion of the [plaintiff’s] indemnification claims seeking reimbursement of attorneys’ fees.” The First Department reversed, explaining:

Section 2.03(d) of the [Pooling and Servicing Agreements (“PSAs”) between the parties’] requires defendant, as Seller, to “promptly reimburse … the Trustee for any actual out-of-pocket expenses reasonably incurred by … the Trustee in respect of enforcing the remedies for such breach”.

The unmistakable intent of the parties to the PSAs is that enforcement expenses to be reimbursed include attorneys’ fees incurred in bringing these actions. As the Second Department recognized in Scheer v Kahn (221 AD2d 515 [2d Dept 1995]), language requiring one party to indemnify the other for all expenses incurred in leaving [sic] this agreement judicably enforced must include the expenses incurred in hiring an attorney.

(Internal quotations and citations omitted) (emphasis added).

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