Editor: David Reiss
Brooklyn Law School

June 28, 2013

BoA Claws Back Clawback

By David Reiss

New York County Supreme Court Justice Bransten held, in U.S. Bank National v. Countrywide Home Loans, Inc., no. 652388-2011 (May 29, 2013), that a trustee cannot succeed in getting the defendants (Countrywide entities among others) to repurchase all of the mortgages in a securities pool based on a theory of “pervasive breach.” Rather, she holds that the repurchase obligations are determined by the terms of the agreements governing this MBS transaction.

The trustee asserted that the loans breached the reps and warranties.  The deal documents, however, limited the trustee’s remedy for such a breach to repurchase. The Court writes that

Plaintiff invites this Court to look past the absence of contractual language supporting its claim, asserting that it is entitled to the  benefit of every inference on a motion to dismiss.  While the Trustee is entitled to all favorable inferences with regard to its factual claims on a motion to dismiss, its bare legal conclusion that the Servicing Agreement accommodates its pervasive breach theory is not entitled to deference. (8)

Justice Bransten has ruled on a number of MBS cases involving alleged breaches of reps and warranties and is developing a coherent body of law on this topic. In the Bransten Trio of cases, she rejects the idea that vague disclosures are sufficient to immunize securitizers from liability for endemic misrepresentation. And here, she rejects the idea that vague theories of liability can replace the clear language agreed to by the parties.  In good judicial fashion, she is letting parties know that they should pay attention to the text of their agreements and be ready to face the consequences of those agreements.

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