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Commerzbank AG v. Deutsche Bank National Trust Co.

United States District Court, S.D. New York

February 8, 2017

COMMERZBANK AG, Plaintiff,
v.
DEUTSCHE BANK NATIONAL TRUST COMPANY, Defendant.

          MEMORANDUM OPINION AND ORDER

          JOHN G. KOELTL UNITED STATES DISTRICT JUDGE.

         The plaintiff, Commerzbank AG (“Commerzbank”), allegedly made 74 investments in 50 residential mortgage-backed securities (“RMBS”) trusts (the “Trusts”) for which the defendant, Deutsche Bank National Trust Company (“Deutsche Bank”), served as trustee. Commerzbank seeks to hold the defendant liable for the poor performance of Commerzbank's investments in the Trusts, and has asserted that the defendant (1) violated the Trust Indenture Act of 1939 (the “TIA”), 15 U.S.C. § 77aaa, et seq.; (2) breached the Pooling and Servicing Agreements (the “PSAs”) and the indenture agreements (the “Indentures”) governing the Trusts; (3) breached its fiduciary duty to Commerzbank; (4) was negligent or grossly negligent; (5) violated New York's Streit Act, N.Y. Real Prop. Law § 124, et seq.; and (6) breached the covenant of good faith. The defendant has moved to dismiss portions of the Amended Complaint for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

         The motion to dismiss presents the feeling of déjà vu. In a related case before this Court, see Phoenix Light SF Ltd. v. Deutsche Bank Nat'l Trust Co., 14-cv-10103 (JGK) (S.D.N.Y.) (the “Phoenix Light Action”), different plaintiffs brought substantially similar claims against Deutsche Bank that, as described by Commerzbank, are “rooted in the same basic alleged facts and legal theories against the same defendant” and in fact involve nine of the same Trusts. Dkt. 3 (The Related Case Statement Filed by Commerzbank). The law firms representing the parties in this action, and in that action, are the same. On January 22, 2016, this action was stayed pending the decision on the motion to dismiss portions of the Second Amended Complaint in the Phoenix Light Action. See Dkt. 13. In an Opinion and Order dated March 28, 2016 (“Deutsche Bank I”), the motion to dismiss in the Phoenix Light Action was granted in part and denied in part. See Phoenix Light SF Ltd. v. Deutsche Bank Nat'l Trust Co., 172 F.Supp.3d 700 (S.D.N.Y. 2016). Thereafter, Commerzbank filed the Amended Complaint in this action.

         For the reasons explained below, Deutsche Bank's motion to dismiss the Amended Complaint is granted in part and denied in part.

         I.

         In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiff's favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007). The Court's function on a motion to dismiss is “not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient.” Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). The Court should not dismiss the complaint if the plaintiff has stated “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         While the Court should construe the factual allegations in the light most favorable to the plaintiff, “the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions.” Id. When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); see also Phoenix Light, 172 F.Supp.3d at 704-05.

         II.

         The allegations in the Amended Complaint are accepted as true for purposes of this motion to dismiss.

         The allegations in the Amended Complaint are substantially similar to those in the Second Amended Complaint in the Phoenix Light Action, as described in Deutsche Bank I. See Phoenix Light, 172 F.Supp.3d at 705-07; see also Pl.'s Op. Mem. at 3 (“Commerzbank's Amended Complaint is substantially the same as the Second Amended Complaint in the [Phoenix Light Action].”). Familiarity with that decision, the mechanism by which RMBS trusts are created, and the alleged misconduct of the third-party sponsors, originators, depositors, underwriters, and servicers related to the Trusts (the “Third-Party Entities”) that underlies Commerzbank's claims, is presumed. See id.; see also Phoenix Light SF Ltd. v. Bank of N.Y. Mellon, No. 14-CV-10104 (VEC), 2015 WL 5710645, at *1 (S.D.N.Y. Sept. 29, 2015).

         Commerzbank is alleged to be an entity organized under the laws of Germany. Am. Compl. ¶ 16. The defendant is alleged to be a national banking organization with its principal place of business located in California. Am. Compl. ¶ 21. Commerzbank is the holder, or former holder, of RMBS certificates (the “Certificates”) issued by the Trusts, for which the defendant served as trustee pursuant to the PSAs and Indentures governing the Trusts. Am. Compl. ¶¶ 33, 108. The Certificates have an original face value in excess of $640 million. Am. Compl. ¶ 3. Commerzbank has brought in this action “its own claims while it was [the holder of the Certificates] and the claims that were assigned to it by [the prior holders of the Certificates].” Am. Compl. ¶¶ 16-17.

         Commerzbank alleges that, over a period of years, the Third-Party Entities systematically and substantially misbehaved with respect to the Trusts. The essence of Commerzbank's claims is that the defendant failed to comply with its statutory, contractual, and common law duties in monitoring and policing the Third-Party Entities, and in notifying Commerzbank about the misconduct. See, e.g., Am. Compl. ¶¶ 9-15, 34-35, 45, 61, 68, 73, 80, 129-32.

         The Amended Complaint alleges that the misconduct of the Third-Party Entities became apparent to the defendant, and later the public (including Commerzbank), in drips and drabs. The Trusts were created between 2005 and 2007. Am. Compl. ¶ 2. The Amended Complaint alleges that the defendant was aware of at least some of the misconduct as early as 2007. Am. Compl. ¶ 130. The Amended Complaint alleges that, “Beginning in 2009 or 2010, facts began to emerge publicly demonstrating that the Sponsors and Originators had violated the representations and warranties provided in connection with the [] Trusts.” Am. Compl. ¶ 77. The Amended Complaint alleges that, in July 2011, the Association of Mortgage Investors wrote a letter to, among others, the defendant notifying the defendant about the Association's concerns regarding the conduct of the Third-Party Entities. Am. Compl. ¶ 114. The Amended Complaint also alleges that, in December 2011, another group of investors “in hundreds of RMBS trusts issued written instructions to [the defendant], as trustee, to open investigations into large numbers of ineligible mortgages in the loan pools securing those trusts and deficient servicing of those loans.” Am. Compl. ¶ 115.

         In November 2011, Commerzbank sold several of its Certificates. See Am. Compl., Ex. B. The Amended Complaint alleges that, “When the sales were made it was apparent that Deutsche Bank had breached its duties and would not take steps to remedy its failures.” Am. Compl. ¶ 163.

         The Amended Complaint alleges that the defendant's conduct has caused Commerzbank to suffer hundreds of millions of dollars in losses on its investments in the Trusts. Am. Compl. ¶ 15.

         III.

         A.

         The defendant has moved to dismiss as time-barred the claims with respect to the “Palmer 3 Certificates, ” see Biron Decl., Ex. C; the “Commerzbank Certificates, ” see Biron Decl., Ex. D; and the “Eurohypo Certificates, ” see Biron Decl., Ex. E.

         Commerzbank acquired the Palmer 3 Certificates through its merger with Dresdner Bank AG (“Dresdner”) in May 2009. Am. Compl. ¶¶ 16, 20. Prior to the merger, Dresdner was a public limited company incorporated in Germany with its principal place of business in Germany. See Biron Decl., Ex. M (Dresdner Financial Report 2008). Dresdner acquired the Palmer 3 Certificates around August 2008 from Palmer Square 3 Limited (“Palmer 3”), a private limited liability company organized under the laws of Ireland. Am. Compl. ¶¶ 17, 20.

         Commerzbank acquired the Commerzbank Certificates at their issuance. Am. Compl. ¶ 17; see also Am. Compl., Ex. B.

         Commerzbank acquired the Eurohypo Certificates on December 11, 2013 from Eurohypo AG (“Eurohypo”), now known as Hypothekenbank Frankfurt AG, New York Branch, which was the New York branch of a corporate entity organized under the laws of Germany. Am. Compl. ¶¶ 17, 19; see also Biron Decl., Ex. L (Commerzbank Financial Statements and Management Report 2015).

         A federal court sitting in diversity applies the forum state's statute of limitations provisions as well as any provisions that govern the tolling of the statute of limitations. Diffley v. Allied-Signal, Inc., 921 F.2d 421, 423 (2d Cir. 1990); see also Vincent v. Money Store, 915 F.Supp.2d 553, 562 (S.D.N.Y. 2013). In diversity cases in New York, federal courts apply New York's borrowing statute, N.Y. C.P.L.R. § 202. Stuart v. Am. Cyanamid Co., 158 F.3d 622, 627 (2d Cir. 1998).

         N.Y. C.P.L.R. § 202 requires a non-resident plaintiff to file a claim within the shorter of either: 1) the New York statute of limitations; or 2) the statute of limitations in the jurisdiction in which the claim accrued. Glob. Fin. Corp. v. Triarc Corp., 715 N.E.2d 482, 484 (N.Y. 1999) (“When a nonresident sues on a cause of action accruing outside New York, CPLR 202 requires the cause of action to be timely under the limitation periods of both New York and the jurisdiction where the cause of action accrued. This prevents nonresidents from shopping in New York for a favorable Statute of Limitations.” (footnote omitted)). When borrowing a foreign jurisdiction's statute of limitations, the tolling provisions are also borrowed. GML, Inc. v. Cinque & Cinque, P.C., 877 N.E.2d 649, 650 (N.Y. 2007).

         “[B]ecause the defendant[] bear[s] the burden of establishing the expiration of the statute of limitations as an affirmative defense, a pre-answer motion to dismiss on this ground may be granted only if it is clear on the face of the complaint that the statute of limitations has run.” Fargas ...


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