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ACE Securities Corp. v. DB Structured Products, Inc.

Supreme Court of New York, New York County

May 13, 2013

ACE SECURITIES CORP., Home Equity Loan Trust, Series 2006-SL2, by HSBC Bank USA, National Association, solely in its capacity as Trustee pursuant to a Pooling and Servicing Agreement, dated as of March 1, 2006, Plaintiff,

[965 N.Y.S.2d 846] Kasowitz, Benson, Torres & Friedman LLP, for plaintiff.

Simpson Thacher & Bartlett LLP, for defendant.


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Defendant DB Structured Products, Inc. (DBSP) moves to dismiss the Complaint pursuant to CPLR 3211(a)(1), (3), (7), & (8). Defendant's motion is denied for the reasons that follow.

Factual Background & Procedural History

This case concerns DBSP's alleged breach of its contractual obligation to repurchase certain non-conforming loans that were pooled, deposited into a trust, securitized, and sold to investors. Since this action arises from contractual obligations under a trust with a " no-action clause," the Trustee, HSBC Bank USA, National Association, filed the Complaint on behalf of a certificateholder (plaintiff ACE Securities Corp.) (ACE) in the subject trust (Home Equity Loan Trust, Series 2006-SL2) (the Trust). As this decision involves a motion to dismiss, the facts recited are taken from the Complaint.

The loans at issue in this case were purchased by DBSP from at least three originators and then sold to ACE in a Mortgage Loan Purchase Agreement dated March 28, 2006 (the MLPA). Complaint ¶¶ 2-3. Following the usual protocol for creating residential mortgage backed securities, ACE deposited the loans into the Trust. ¶ 4. The loans were securitized through the issuance of over $500 million of certificates pursuant to a Pooling and Servicing Agreement dated as of March 1, 2006 (the PSA). Id. In the MLPA, DBSP made over fifty representations and warranties (the Representations) regarding the characteristics and quality of the loans, including those common in many MLPAs (e.g., representations about underwriting guidelines such as the borrower's income and loan-to-value ratio) and those that are somewhat rarer (e.g., a " no-fraud representation").[1] ¶¶ 5-6. Under Section 2.03 of the PSA, DBSP was obligated to

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cure a breach of a Representation within 60 days of discovery or receipt of notice thereof, or, in the event that such breach could not be cured, DBSP had to repurchase the affected loans within 90 days at a defined Purchase Price. ¶ 26. Both the PSA and the MLPA provide that the Repurchase Protocol is the " sole remedy" with respect to loan losses caused by false Representations.

On March 28, 2012, this action was commenced by two certificateholders (RMBS Recovery Holdings 4, LLC and VP Structured Products, LLC) by filing a Summons with Notice. A single cause of action alleging breach of contract was stated. It is undisputed that these certificate-holders lacked standing to maintain this action under the PSA's no-action clause. They did [965 N.Y.S.2d 847] so, apparently, due to concerns over their claims being time barred, a worry amplified by the Trustee's initial refusal to sue on their behalf. Ultimately, the Trustee was substituted as the plaintiff for the certificate-holders. As discussed infra, the manner in which this action was originally commenced, in the end, is not at issue because the relevant statute of limitations did not expire before the substitution.[2]


On a motion to dismiss, the court must accept as true the facts alleged in the complaint as well as all reasonable inferences that may be gleaned from those facts. Amaro v. Gani Realty Corp., 60 A.D.3d 491, 876 N.Y.S.2d 1 (1st Dept. 2009); Skillgames, L.L.C. v. Brody, 1 A.D.3d 247, 250, 767 N.Y.S.2d 418 (1st Dept. 2003), citing McGill v. Parker, 179 A.D.2d 98, 105, 582 N.Y.S.2d 91 (1992); see also Cron v. Hargro Fabrics, 91 N.Y.2d 362, 366, 670 N.Y.S.2d 973, 694 N.E.2d 56 (1998). The court is not permitted to assess the merits of the complaint or any of its factual allegations, but may only determine if, assuming the truth of the facts alleged, the complaint states the elements of a legally cognizable cause of action. Skillgames, id., citing Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275, 401 N.Y.S.2d 182, 372 N.E.2d 17 (1977). Deficiencies in the complaint may be remedied by affidavits submitted by the plaintiff. Amaro, 60 A.D.3d at 491, 876 N.Y.S.2d 1. " However, factual allegations that do not state a viable cause of action, that consist of bare legal conclusions, or that are inherently incredible or clearly contradicted by documentary evidence are not entitled to such consideration." Skillgames, 1 A.D.3d at 250, 767 N.Y.S.2d 418, citing

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Caniglia v. Chicago Tribune- New York News Syndicate, 204 A.D.2d 233, 612 N.Y.S.2d 146 (1st Dept. 1994). Further, where the defendant seeks to dismiss the complaint based upon documentary evidence, the motion will succeed if " the documentary evidence utterly refutes plaintiff's factual allegations, conclusively establishing a defense as a matter of law." Goshen v. Mutual Life Ins. Co. of NY, 98 N.Y.2d 314, 326, 746 N.Y.S.2d 858, 774 ...

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