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

United States District Court, S.D. New York

May 18, 2015

PHOENIX LIGHT SF LIMITED, in its own right and in the right of 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., and each of BLUE HERON FUNDING VI LTD., BLUE HERON FUNDING VII LTD., KLEROS PREFERRED FUNDING V PLC, SILVER ELMS CDO PLC and SILVER ELMS CDO II LIMITED, in their own right, Plaintiffs,
v.
U.S. BANK NATIONAL ASSOCIATION and BANK OF AMERICA, NA, Defendants.

OPINION & ORDER

KATHERINE B. FORREST, District Judge.

Plaintiffs-foreign entities incorporated under the laws of Ireland and the Cayman Islands-allege that they are assignees of a now-defunct German corporation's claims with regard to certificates in residential mortgage-backed securities ("RMBS") trusts with face value in excess of $510 million. (See Amended Complaint ("Am. Compl.") ¶¶ 3, 22, ECF No. 36.) The certificates are alleged to relate to 34 trusts. (See id. ¶ 1 & Ex. A.) Defendants U.S. Bank National Association and Bank of America, NA-trustees of these 34 trusts-are alleged to have breached their contractual, fiduciary, and statutory duties. (Id. ¶ 8.)

Before this Court is defendants' joint motion to dismiss the Amended Complaint on the basis that, inter alia, plaintiffs lack standing. (ECF No. 49.) For the reasons set forth below, defendants' motion is GRANTED on that basis. Defendants also argue that plaintiffs' statutory and tort claims should be dismissed. The Court declines to resolve the remaining issues at this time, as it will provide plaintiffs with a single opportunity to replead.[1]

I. STANDARD OF REVIEW

Standing is a jurisdictional question properly raised in a motion pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure. Alliance for Envtl. Renewal, Inc. v. Pyramid Crossgates Co., 436 F.3d 82, 88 n.6 (2d Cir. 2006). "[W]here jurisdictional facts are placed in dispute, the court has the power and obligation to decide issues of fact by reference to evidence outside the pleadings, such as affidavits." Tandon v. Captain's Cove Marina of Bridgeport, Inc., 752 F.3d 239, 243 (2d Cir. 2014) (quoting APWU v. Potter, 343 F.3d 619, 627 (2d Cir. 2003)) (internal quotation marks omitted).

II. FACTUAL BACKGROUND[2]

Plaintiffs allege that they obtained their rights as to the RMBS certificates at issue in this action pursuant to an assignment. (Am. Compl. ¶ 22.) Plaintiffs allege that WestLB-a German corporation with its principal place of business in Düsseldorf, Germany-"initially purchased" the RMBS certificates. (Id.) In July 2012, "WestLB underwent a restructuring, pursuant to which WestLB transferred the majority of its remaining assets to a public winding-up agency known as Erste Abwicklungsanstalt." (Id.) "As a result of the restructuring measures, WestLB discontinued its banking business." (Id.) At some point, plaintiffs allegedly became the "assignees of all rights, title, interest, causes of action and claims regarding securities initially purchased by the assignor." (Id. ¶ 23.) Plaintiffs allege that "[t]he Certificates at issue in this case were severely damaged on or before the day they were transferred to Plaintiffs, and continue to be damaged, in an amount to be proven at trial." (Id.)

Plaintiffs claim to have standing to bring direct claims (Am. Compl. ¶¶ 15-20), and Phoenix Light SF Ltd. ("Phoenix Light") additionally claims to have standing to sue on behalf of its fellow co-plaintiffs and two non-plaintiff entities-C-BASS CBO XIV Ltd. and C-BASS CBO XVII Ltd. (collectively, "C-BASS entities")- because it allegedly "holds more than 50% of the controlling class of notes" issued by them (id. ¶ 24).

III. DISCUSSION

No plaintiff has adequately pled or established that it has standing to bring this action-either directly or derivatively.

A. Direct Claims

Plaintiffs allege that they "bring their claims against Defendants as assignees of claims regarding Certificates that were initially purchased by WestLB." (Am. Compl. ¶ 22.) It is unclear whether plaintiffs (except perhaps Phoenix Light) purchased or otherwise obtained their certificates from WestLB, Erste Abwicklungsanstalt, or some other third party. It is unclear whether any restrictions were imposed on plaintiffs' rights as to these certificates at the time of transfer-and, if so, what those restrictions were. It is unclear whether the transfer was made pursuant to German law or some other law-and whether whatever law applied allows the assignment of legal claims.[3] Finally, it is unclear whether-if the applicable law allows for such an assignment-the documentation here was sufficient to effect one.

Accordingly, at the outset, there are insufficient allegations to support a proper assignment of legal claims as to any or all time periods for the certificates at issue. Plaintiffs are incorrect that allegations that plaintiffs are current certificateholders that suffered damages as a result of defendants' breaches are sufficient to establish standing as to all claims, past and present. Standing is a threshold question as to the Court's power to hear the case, Warth v. Seldin, 422 U.S. 490, 498 (1975)-and plaintiffs "must allege facts that affirmatively and plausibly suggest that [they have] standing to sue, " Amidax Trading Grp. v. S.W.I.F.T. SCRL, 671 F.3d 140, 145 (2d Cir. 2011) (per curiam). Here, the allegations leave too many questions unanswered. Plaintiffs may be certificateholders, but what rights they have as certificateholders (and which state's or nation's law governs this issue) remains unclear. This failure alone provides a basis to dismiss plaintiffs' direct claims.

In any event, materials appropriately reviewed on this 12(b)(1) motion[4]-the Indenture governing plaintiff Blue Heron Funding VII Ltd. (the "Blue Heron VII Indenture") and letters from Phoenix Light's counsel to the indenture trustees- indicate that plaintiffs are contractually barred from directly asserting claims as to the ...


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