RMBS Trust Suit Dismissed Under No-Action Clause Because Plaintiff Failed to Adequately Allege Futility of Demand on Trustee

Posted: September 19, 2025 / Written by: Jeffrey M. Eilender, Thomas A. Kissane, Samuel L. Butt, Joshua Wurtzel, Channing J. Turner / Category Commercial

RMBS Trust Suit Dismissed Under No-Action Clause Because Plaintiff Failed to Adequately Allege Futility of Demand on Trustee

On July 30, 2025, Justice Melissa A. Crane of the New York County Commercial Division issued a decision in Finkelstein v. U.S. Bank, National Association, as Trustee, et al., Index No. 651317/2023, dismissing plaintiff's claim that it was underpaid by the servicer on the ground that, under the no-action clause in the pooling and servicing agreement (PSA), plaintiff failed to first demand that the trustee bring suit and also failed to adequately allege that demand would have been futile, explaining:

It is undisputed that the PSA agreement governing the Trust here has what is known as a "no action" clause. The Certificate Holders are not allowed to bring suit unless they first demand that the Trustee take action (see PSA, section 11.03, entitled "Limitation of Rights of Certificate Holders" [EDOC 160]).

At times, courts will excuse compliance with the no action clause when the allegations are such that demand would be tantamount to asking the Trustee to sue itself (see Deer Park Rd. Mgmt. Co., LP v Nationstar Mortg., LLC, 233 AD3d 564,565 [1st Dept 2024]; Commerzbank AG v US. Bank, NA., 100 F4th 362 [2d Cir. 2024], cert. denied, 145 S Ct 279 [2024]; see also discussion in this court's decision and order resolving Mot. Seq. Nos. 6-8).

To circumvent the strictures of the no action clause, it became necessary for plaintiff to accuse the Trustee of misdeeds to make it look like demand would be futile. Accordingly, plaintiff has lobbed speculative allegations regarding a supposed plot involving the entire RMBS industry. What plaintiff does not do is allege any specific facts showing that termination of the Trust in this case was part of this alleged scheme. Moreover, each of the derelictions of duty that plaintiff accuses US Bank of fall apart on closer scrutiny.

Demand futility is a nuanced area of the law. But here, the court held that plaintiff's allegations against the trustee failed, because the acts plaintiff complained the trustee failed to take were not acts it was required to take under the PSA. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning no-action clauses or demand futility in RMBS litigation.