On May 11, 2017, the First Department issued a decision in Bank of N.Y. Mellon v. WMC Mortgage, LLC, 2017 NY Slip Op. 03881, addressing the multiple theories under which RMBS trustees can assert claims in put-back actions.
First, as other decisions have done, the court affirmed the dismissal of claims “for breach of the repurchase obligation” as time barred, explaining that “the Court of Appeals definitively settled this issue in ACE Sec. Corp. v DB Structured Products, Inc. (25 NY3d 581, 590  [ACE]), setting forth a clear rule that a breach of contract claim in an RMBS put-back action accrues on the date the allegedly false representations and warranties were made. Here, BNY commenced the action more than six years after the closing, thus placing the action outside the six-year statute of limitations.
Second, the court went to hold that
[S]eparate from the existence of WMC’s legal obligation within a particular time frame is the question of how BNY was to proceed in order to enforce WMC’s repurchase obligation and JPMAC’s backstop repurchase obligation, and whether BNY could proceed against JPMAC on a WMC liability only if BNY had first successfully asserted a timely claim against WMC.
To assert a timely claim against WMC under ACE, BNY had to seek to enforce WMC’s obligation to repurchase loans that were in breach as of June 28, 2006 by filing suit with six years of that date, and also had to satisfy the procedural condition precedent by providing WMC with a default notice relating to specific loans and by providing 60— and 90—day periods for cure and repurchase. Here, on June 7, 2012, BNY gave notice to WMC of certain loan breaches; the notice was within six years of the transaction closing date of June 28, 2006, and during WMC’s existing repurchase obligation period. But even if BNY had filed a summons on or before June 28, 2012, it would not have been able to file a timely suit against WMC based on the June 7 notice because the 60— and 90—day periods for cure and repurchase would not have elapsed before the expiration of the limitations period. The other notices for alleged loan breaches were after June 28, 2012 — that is, after WMC’s legal obligation with respect to the loans had terminated by operation of the statute of limitations.
Conversely, to assert a claim against JPMAC based on JPMAC’s backstop guaranty obligation, BNY had to assert an underlying WMC breach of the repurchase obligation that triggered JPMAC’s backstop repurchase duty. When BNY gave WMC notice of breaching loans on June 7, 2012, WMC’s repurchase obligation remained in effect, and when WMC did not repurchase within 90 days, JPMAC’s backstop obligation kicked in under the PSA provision stating that in the event WMC “shall fail” to repurchase a loan in accordance with the Repurchase Protocol, JPMAC “shall do so.” That BNY did not (and could not) bring a timely suit to enforce WMC’s obligation to repurchase the noticed loans does not negate the repurchase obligation and JPMAC’s backstop obligation.
Third, the court held that “based on our recent decision in Morgan Stanley Mtge. Loan Trust 2006-13ARX v Morgan Stanley Mtge. Capital Holdings LLC (143 AD3d 1 [1st Dept 2016]), we reinstate that cause of action as against JPM Bank. In Morgan Stanley, we likewise reinstated a failure to notify claim; in so doing, we noted that in Nomura Home Equity Loan, Inc., Series 2006-FM2 v Nomura Credit & Capital, Inc., (133 AD3d 96 [1st Dept 2015]), we had previously found that a seller’s failure to provide notice of material breaches it discovers in the underlying loans states an independently breached contractual obligation, allowing a plaintiff to pursue separate damages.” (Emphasis added).