Natixis Real Estate Capital Trust 2007-HE2, etc., Plaintiff-Respondent,
Natixis Real Estate Holdings, LLC, Defendant-Appellant.
appeals from an order of the Supreme Court, New York County
(Marcy S. Friedman, J.), entered on or about July 2, 2015,
which, insofar as appealed from, denied defendant's
motion to dismiss the complaint pursuant to CPLR 3211.
& Gilbert LLP, New York (Bruce M. Ginsberg, Joseph
Cioffi, James R. Serritella and Massimo Giugliano of
counsel), for appellant.
Emanuel Urquhart & Sullivan, LLP, New York (Andrew
Dunlap, Philippe Z. Selendy, Maya D. Cater and Stephen
Schweizer of counsel), for respondent.
Friedman, J.P., Dianne T. Renwick, Paul G. Feinman, Judith J.
Gische, Barbara R. Kapnick, JJ.
appeal stems from a transaction involving residential
mortgage backed securities (RMBS). Plaintiff, the
administrator of the securitized trust, seeks to enforce the
loan repurchase rights, more commonly referred to as putback
rights, against defendant sponsor of the securitized
transaction for breach of the representations and warranties
defendant made regarding the quality of the mortgage loans.
This action raises a number of issues that regularly recur in
putback actions, including whether the action was timely
commenced, whether or not the action is unripe for failing to
comply with a condition precedent to commencement of the
action, and whether plaintiff adequately pleaded a cause of
action for breach of the representations and warranties. This
action also raises an issue of first impression of whether
enforcement of putback rights is within the exclusive domain
of a RMBS's trustee so as to deny plaintiff Securities
Administrator standing to commence this action.
and Procedural Background
role as sponsor of the securitization that is at the core of
this case, defendant Natixis Real Estate Holdings, Inc.
(Natixis) purchased 4, 704 residential mortgage loans worth
more than $877 million pursuant to a Mortgage Loan Purchase
Agreement (MLPA). The MLPA contains numerous representations
and warranties from the loan originators (Originators'
Warranties) about the quality of the loans. Natixis then sold
the loans to a passthrough deposit entity, Morgan Stanley ABC
Capital I, Inc. (Depositor), pursuant to an Unaffiliated
Seller Agreement (SA). In the SA, Natixis made several
representations and warranties to the Depositor, which were
separate and independent from those issued by the Originators
in the MLPA.
Stanley then deposited the loans, including its
representation and warranties in the MLPA and SA, into a
securitized trust pursuant to a pooling and servicing
agreement (PSA). The parties to the PSA included Morgan
Stanley, as Depositor, Deutsche Bank National, as the
Trustee, and Wells Fargo, NA, as Securities Administrator.
The individual mortgage loans served as collateral for the
certificates issued by the Trustee, who paid principal and
interest to certificate holders from the cash flow generated
from the mortgage loan payments. Thus, the certificate
holders made money when the borrowers made payments to the
loans. The trust held legal title to the mortgages and the
Trustee was responsible for servicing them. The servicing
administrator is the trust's collection agent pursuant to
actions are typically brought by a trustee on behalf of the
trust (securitization vehicle) asserting claims of breach of
contract (see 4C Commercial Litigation in New York State
Courts § 91:9 at 888 [4th ed 2015]). In this case,
however, it is the Securities Administrator who brings the
breach of contract claims against the sponsor, Natixis
. The complaint alleges that the PSA
transaction imposes an obligation upon Natixis to repurchase
the loans because it breached the SA representations and
warranties. In addition, plaintiff avers that Natixis had the
"backstop" obligation to repurchase defective loans
that breached the Originators' representations and
warranties, once the Originators failed to cure or repurchase
them. As indicated, the complaint alleges breaches of two
sets of representations and warranties, each of which
independently triggers a duty to repurchase the defective
loans: (i) the warranties made by the Originators in the
MLPAs and the Assignment and Recognition Agreements
(Originator Warranties); and (ii) the warranties made by
Natixis in the SA (SA Warranties).
Originator Warranties in the MLPAs include, among others,
that "[n]o fraud, error, omission, misrepresentation,
negligence or similar occurrence" had occurred on the
part of any person; that borrowers "had a reasonable
ability to make timely payments" on the mortgage; that
each pool of loans complied with the relevant
Originators' underwriting guidelines; and that "the
information set forth in the mortgage loan schedule was true
and correct[.]" According to the MPLA, the complaint
continues, if any of these Originator Warranties were false,
the relevant Originator was required to repurchase any
affected loans within 60 days of the Originators'
discovery or receipt of notice of that breach. As backstop
duties, the PSA required Natixis to repurchase any loan that
breached the MLPA representations and warranties if the
Originators failed to repurchase the defective loans pursuant
to the MPLA.
the complaint avers that Natixis and the Depositor also
executed the SA on the closing date. In the SA, Natixis
transferred the loans to the Depositor and made the SA
Warranties. The SA Warranties include, among other things,
that no event had occurred that would render the
Originators' warranties untrue, that the loans were not
selected in a manner adverse to the trust; and that the loans
complied with all applicable law. The PSA required Natixis to
repurchase all loans that breach the SA's representations
and warranties within 90 days of its discovery or receipt of
notice of such breach.
moved to dismiss the complaint arguing that plaintiff: 1) as
Securities Administrator, lacked standing to sue; 2) failed
to comply with certain conditions precedent prior to
commencing the action; 3) failed to timely commence the
action; and 4) failed to sufficiently plead a breach of
contract claim based upon a breach of the SA representations
and warranties. Supreme Court declined to dismiss the action
(or any claim) on such grounds. We now affirm for the reasons
begin by examining the threshold question of standing. We
find that Supreme Court properly held that the Securities
Administrator has standing to prosecute this action. To be
sure, we recognize that an RMBS trust is not unlike a typical
common-law trust in which the trustee (rather than the trust
itself, which is a legal fiction) holds the asset for the
benefit of the certificate holders (who are the beneficiaries
of the trust) (see Beck v Manufacturers Hanover Trust
Co., 218 A.D.2d 1, 12 [1st Dept 1995). Under such legal
structure, we agree with Natixis, that the trustee itself is
recognized under New York Law as the party in interest for
the purpose, among others, of ...