Commerzbank AG v. Bank of New York Mellon

Background

Commerzbank AG sued Bank of New York Mellon and Bank of New York Mellon Trust Company, N.A., collectively called BNYM, over their work as trustees for 72 residential mortgage-backed securities trusts and the Millstone collateralized debt obligation. Commerzbank asserted claims under the Trust Indenture Act of 1939, for breach of contract, and for negligence. It alleged that BNYM failed to perform various trustee duties concerning defective loans, notices, investigations, repurchases, alleged Events of Default, and post-Event-of-Default conduct.

The court had previously dismissed claims for breach of fiduciary duty, violation of the Streit Act, and breach of the duty of good faith. The remaining claims were the Trust Indenture Act claims, breach-of-contract claims, and negligence claims. Commerzbank moved for partial summary judgment, asking the court to find that the alleged Events of Default occurred and that BNYM breached its post-Event-of-Default duties. BNYM cross-moved for summary judgment on all remaining claims.

Rulings on Commerzbank’s Motion

The court denied Commerzbank’s motion for partial summary judgment. Commerzbank acknowledged that genuine disputes of material fact existed about whether the Events of Default occurred and whether BNYM breached its post-Event-of-Default duties. Those issues therefore could not be resolved on summary judgment.

Standing and Statute of Limitations

The court granted BNYM summary judgment on standing as to 76 certificates that Commerzbank sold before filing the lawsuit. Applying New York law, the court concluded that claims generally travel with the security unless the seller expressly reserves them in writing. Commerzbank did not identify a written document reserving the claims, so the court dismissed claims relating to those certificates.

The court also applied the German three-year statute of limitations, which the court had previously determined governed Commerzbank’s claims. It held that claims concerning 11 of the 24 certificates that Commerzbank still owned were untimely because Commerzbank had sufficient knowledge of the relevant circumstances before 2012. The court granted BNYM summary judgment on those claims.

The court held that claims concerning the remaining 13 certificates were timely because Commerzbank acquired them in 2012 or 2015. It denied BNYM’s statute-of-limitations motion as to those claims. The court also rejected BNYM’s argument that claim preclusion or issue preclusion based on the Countrywide settlement barred the claims concerning the 13 certificates.

Trust Indenture Act and Negligence Claims

The court granted BNYM summary judgment on all Trust Indenture Act claims. The court had previously limited those claims to four statutory trusts, but all claims involving those trusts were barred by standing or the statute of limitations.

The court also granted BNYM summary judgment on all negligence claims. It concluded that the negligence claims were based on alleged failures to perform contractual duties and therefore duplicated the breach-of-contract claims. The court also relied on New York authority concerning duplicative tort claims and economic losses governed by an express contract.

Breach-of-Contract Claims

The court granted BNYM summary judgment on contract claims involving pre-Event-of-Default duties to notify other parties about loan-level breaches and duties to enforce repurchases of defective loans. The court concluded that forwarding breach letters to the relevant parties satisfied any applicable notice duties. It also concluded that the contractual language gave the trustee a right, rather than an affirmative duty, to enforce repurchase remedies before an Event of Default.

The court denied BNYM summary judgment on contract claims involving pre-Event-of-Default duties to investigate. Although the agreements did not impose a general duty to investigate without specified investor instructions or sufficient knowledge, the court held that a trustee could not avoid liability through willful blindness. Evidence about BNYM’s knowledge of specific loan-level breaches and possible Events of Default created factual issues for a factfinder.

The court also denied BNYM summary judgment on the contract claims concerning whether Events of Default occurred and whether BNYM then had to act as a prudent person. The parties disputed whether proper written notice was provided, whether servicing failures occurred, and whether BNYM knew enough to trigger the relevant duties. Those factual disputes could not be resolved on summary judgment.

Disposition

The court denied Commerzbank’s motion for partial summary judgment. It granted BNYM’s cross-motion on standing and the statute of limitations as to all claims except those involving the 13 remaining certificates. It also granted BNYM’s cross-motion on all Trust Indenture Act claims, negligence claims, and contract claims based on pre-Event-of-Default notice and repurchase duties. It denied BNYM’s cross-motion on the contract claims involving pre-Event-of-Default investigation duties, the alleged occurrence of Events of Default, and post-Event-of-Default prudent-person duties. The clerk was directed to keep the case open and remove it from the suspense docket.