Commercial Division Blog

Posted: October 12, 2017 / Categories Commercial, Discovery/Disclosure, Sanctions

RMBS Trustee Sanctioned for Using Data Sought From Quashed Subpoenas

On September 28, 2017, Justice Scarpulla of the New York County Commercial Division issued a decision in Home Equity Mortgage Trust Series 2006-5 by U.S. Bank N.A. v. DLJ Mortgage Capital, Inc., 2017 NY Slip Op. 32053(U), sanctioning an RMBS trustee for using borrower data that had been sought through subpoenas that the court had quashed, explaining:

On March 25, 2015, I struck the hundreds of subpoenas that the Trustee served on non-party borrowers' employers. Contrary to the Trustee's contention now, I did not merely do so simply to bar the Trustee from using the subpoena discovery mechanism. I struck the subpoenas because they were so overbroad and burdensome, they were incredibly intrusive into the non-party borrowers' privacy rights as to their employment and finances, and were not shown to be necessary, i.e. the Trustee did not demonstrate that it did not already have the relevant information or could not get the information it sought through other, less intrusive means. I gave the Trustee the option of coming back with a more targeted list of discovery, to seek information that had no possibility of already being in the mortgage loan file.

At no time during that oral argument did the Trustee reveal that it had already been seeking the borrowers' employment information through other means, i.e., the Work Number database and the VOE. While it was vaguely mentioned in a paragraph in its order to show cause, the Trustee never specifically informed the court that it was seeking essentially the identical information, that I had just found to be burdensome and overly intrusive, through other means. Directly contacting the borrowers' employers through the VOEs contravenes my March 25, 2015 holding that it was inappropriate to invade the borrowers' privacy rights and employment by directly contacting their employers for the purposes of litigation discovery.

Further, the Trustee has not shown that it would be unable to prove its allegations - that the representations and warranties were breached - by means other than disrupting non-party borrower privacy and employment rights. The Trustee's claim, that it sent the faxes and subpoenas to employers simply as a permissible loan reverification tool, is meritless. This litigation was commenced in 2012. The Trustee's hundreds of subpoenas and fax requests, sent many years after litigation was commenced, were plainly used to support the Trustee's litigation position, as amply demonstrated by the Payne Report. As such, the Trustee is precluded from relying on employment and income information obtained from the VOEs. As the work Number database is a public database tool, reports generated by the Trustee through information received from that database will not be precluded.

(Internal quotations and citations omitted).