Phoenix Light SF Limited v. U.S. Bank National Association

Background

Phoenix Light SF Limited, Blue Heron Funding VI Ltd., Blue Heron Funding VII Ltd., Kleros Preferred Funding V PLC, Silver Elms CDO PLC, Silver Elms CDO II Limited, C-BASS CBO XIV Ltd., and C-BASS CBO XVII Ltd. sued U.S. Bank National Association. The plaintiffs asserted breach-of-contract claims based on pooling and servicing agreements governing U.S. Bank’s duties. Because the plaintiffs were not parties to those agreements, they pursued the claims as alleged third-party beneficiaries based on their claimed ownership of certain residential mortgage-backed securities.

In an earlier decision, the court granted U.S. Bank’s motion for summary judgment. The court had concluded that the granting clauses in the plaintiffs’ collateralized debt obligation indentures transferred the plaintiffs’ rights in the securities to indenture trustees. The court also concluded that the later assignments of claims back to the plaintiffs did not qualify for the exception to New York’s champerty rule recognized when a party has a preexisting ownership or other proprietary interest in the subject of the claim. The court determined that the plaintiffs lacked both constitutional and prudential standing to bring the contract claims without a valid assignment.

Motion for Reconsideration

The plaintiffs moved under Federal Rule of Civil Procedure 59(e) and Local Civil Rule 6.3 for reconsideration and to alter the judgment. Reconsideration generally requires an intervening change in controlling law, new evidence, or a need to correct clear error or prevent manifest injustice. The court emphasized that reconsideration is not an opportunity to relitigate issues, present new theories, or obtain another hearing on the merits.

The plaintiffs argued that the earlier judgment rested on a narrow treatment of champerty and standing. They maintained that the indentures created security interests rather than complete transfers of ownership, that they retained ownership of the securities, and that their assignments were therefore protected by the preexisting-proprietary-interest exception to champerty. They also argued that the court had improperly treated constitutional standing and prudential standing as the same inquiry.

Court’s Analysis

The court rejected the plaintiffs’ attempt to rely on their claimed continued ownership of the securities. It stated that earlier decisions in the case had already rejected the plaintiffs’ interpretation of the indentures and had held that the assignments were necessary for the plaintiffs to pursue their third-party-beneficiary contract claims. The court also said that comparable legal decisions supported the conclusion that the granting clauses transferred the plaintiffs’ rights.

The court held that the plaintiffs had relied on that ownership theory during summary judgment and had not properly supported factual disputes about their purpose in obtaining the assignments. Their reconsideration motion presented additional legal theories and factual propositions that were not raised in their summary judgment briefing. The court treated those arguments as waived or otherwise improper on reconsideration, explaining that the plaintiffs had not justified their earlier failure to present them.

The court also rejected the plaintiffs’ claim that it had confused constitutional standing with prudential standing. It explained that standing must be shown for each claim and each form of relief. Because the plaintiffs’ contract claims depended on their direct ownership of the securities or a valid assignment, and because the indentures transferred away the claimed ownership, the court concluded that the plaintiffs had no contract rights to enforce and lacked constitutional standing without a valid assignment. The court stated that the earlier decision had separately concluded that the plaintiffs lacked both constitutional and prudential standing.

Disposition

Judge Vernon S. Broderick denied the plaintiffs’ motion for reconsideration and to alter the judgment. The court found that the plaintiffs had identified no overlooked controlling law or evidence, clear error, or manifest injustice. The clerk was directed to terminate the motion at Document 423. The opinion does not state that the judgment was altered or that the earlier summary judgment ruling was vacated.