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Royal Park Investments SA/NV v. Deutsche Bank National Trust Co.

United States District Court, S.D. New York

March 21, 2017

Royal Park Investments SA/NV, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
v.
Deutsche Bank National Trust Company, as Trustee, Defendant.

          MEMORANDUM & ORDER

          ALISON J. NATHAN UNITED STATES DISTRICT JUDGE

         Plaintiff Royal Park Investments SA/NV ("Royal Park") brings this putative class action against Defendant Deutsche Bank National Trust Company ("Deutsche Bank"), asserting claims for breach of contract and breach of trust in connection with Deutsche Bank's service as trustee often residential mortgage-backed securities ("RMBS") trusts of which Royal Park and the putative class members are or were beneficiaries (the "Trusts").[1] Before the Court is Royal Park's motion to certify this matter as a class action pursuant to Federal Rules of Civil Procedure 23(a) and 23(b)(3), to appoint Royal Park as class representative, and to appoint Royal Park's counsel, Robbins Geller Rudman & Dowd LLP ("Robbins Geller"), as class counsel. Dkt. No. 185. As set forth further below, because the Court cannot conclude on the record before it that Royal Park's proposed class, as currently defined, satisfies the ascertainability requirement as recently explicated by the Second Circuit Court of Appeals, Royal Park's motion is DENIED without prejudice and with leave to renew the motion so as to propose an appropriately redefined class.

         I. Background

         The Court assumes familiarity with the factual background in this matter as set forth in its previous Orders.

         Briefly, the ten subject Trusts, [2] formed between 2006 and 2007, issued bond-like instruments referred to as RMBS certificates (the "Certificates"), in which Royal Park and other investors acquired beneficial interests. Comp. ¶¶ 4, 30, 33-35, 40-42. The Certificates are collateralized by thousands of mortgage loans held in the Trusts, and Certificate holders are entitled to the cash flows generated by those loans. Id. ¶¶ 4 & n.l, 42. As is typical in this context, the loans were transferred to the Trusts by institutional entities known as "Depositors, " which had in turn acquired them in large pools from entities - often referred to as "Sponsors" or "Sellers" - that had either purchased the loans directly or indirectly from originating lenders and aggregated them or originated the loans themselves. Id. ¶¶ 36-37, 39-40.

         The Trusts are governed by Pooling and Servicing Agreements (the "PSAs") running between, as applicable, the Trustee, relevant Depositors, Sponsors and/or Sellers, and other interested parties, as well as by certain related agreements. Id. ¶¶ 5; 37-38, 44; see also Id. Ex. A. (exemplar Pooling and Service Agreement governing First Franklin Mortgage Loan Trust 2006-FF9). Among other things, the PSAs set forth or incorporate by reference certain representations and warranties (the "R&Ws") made by the relevant Sponsors/Sellers (or, as applicable, by other loan-originating or transferring entities) as to the credit quality and characteristics of the loans held by the Trusts and as to the accuracy of the data conveyed about such loans, and require the warranting entities to cure, substitute and/or repurchase any loans failing to conform to the R&Ws. See, e.g., Id. ¶¶ 7-8 & n.3, 38, 47-48. The PSAs also establish certain rights and duties of Deutsche Bank as Trustee, to be discharged for the benefit of Certificate holders. See, e.g., Id. ¶¶ 8-13, 44, 46. Deutsche Bank's responsibilities include:

(i) the duty to provide prompt notice to the contracting parties of breaches of R&Ws discovered by the Trustee and, if such breaches are not timely cured, to enforce the breaching warrantors' obligations to repurchase or substitute the defective loans; and
(ii) the obligation to take certain actions upon discovery of a so-called "Event of Default" by a "Master Servicer" or "Servicer" (an entity designated by the relevant PSA to service mortgage loans held in Trust), including notifying the relevant Master Servicer or Servicer and demanding timely cure, giving notice to Trust beneficiaries of uncured Events of Default, taking further remedial steps as necessary (such as termination of the Servicer or institution of litigation), and, more broadly, exercising the Trustees' rights and powers to protect investors' interests as a "reasonably prudent person" would to protect its own.

Id. ¶¶ 8-13, 41, 44-60

         Following the Court's February 23, 2016 resolution of Deutsche Bank's motion to dismiss, Royal Park is left with two operative claims. One asserts that Deutsche Bank breached the express contractual obligations set forth above. The other avers that Deutsche Bank breached its common law duty of trust to avoid conflicts of interest with the Trust beneficiaries by, among other things, maintaining "ongoing and prospective business relationships" with many of the Sponsors/Sellers, Master Servicers/Servicers, and others, whose own contractual obligations it was required to enforce. Id. ¶¶ 19-24, 61, 206-219. Royal Park now seeks to certify the following class to further prosecute these claims:

All persons and entities who held Certificates in the [Trusts] and were damaged thereby. Excluded from the class are defendant, the loan originators, the Warrantors, the Master Servicers and the Servicers to the [Trusts], and their officers and directors, their legal representatives, successors, or assigns, and any entity in which they have or had a controlling interest.

See Plaintiff Royal Park's Memorandum of Law in Support of Its Motion for Class Certification and Appointment of Class Representative and Class Counsel, Dkt. No. 185 ("Br.") at 1.

         II. Legal Framework

         In order to qualify for class certification, a plaintiff must first demonstrate that the class it proposes satisfies the four prerequisites of Federal Rule of Civil Procedure 23(a). Those requirements are:

(1) the class is so numerous that joinder of all members is impracticable;
(2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and
(4) the representative parties will fairly and adequately protect the interests of the class.

Fed. R. Civ. P. 23(a). These "four requirements - numerosity, commonality, typicality, and adequate representation - effectively limit the class claims to those fairly encompassed by the named plaintiffs claims." Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 349 (2011) (internal quotation marks omitted). "A class may be certified only if, 'after a rigorous analysis, ' the ... court is satisfied that the prerequisites of [Rule 23(a)] are met." Roach v. T.L. Cannon Corp., 778 F.3d 401, 405 (2d Cir. 2015) (quoting Comcast Corp. v. Behrend, U.S. __, 133 S.Ct. 1426, 1432(2013)).

         Assuming the requirements of Rule 23(a) are met, a plaintiff must then establish that certification is appropriate for one of the three reasons set forth in Rule 23(b). Here, Royal Park seeks certification pursuant to Rule 23(b)(3), under which a court must "find[] that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed.R.Civ.P. 23(b). "The matters pertinent to these findings include: (A) the class members' interests in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already begun by or against class members; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the likely difficulties in managing a class action." Id.

         Of particular importance here, independent of the express requirements of Rule 23, the Court of Appeals has recognized that the Rule includes '"an implied requirement of ascertainability.'" Brecher v. Republic of Argentina, 806 F.3d 22, 24 (2d Cir. 2015) (quoting In re Initial Pub. Offering Sec. Litig, 471 F.3d 24, 30 (2d Cir. 2006) ("In re IPO")). As discussed further below, that implied requirement mandates that the class be "sufficiently definite so that it is administratively feasible for the court to determine whether a particular individual is a member." Brecher, 806 F.3d at 24 (internal quotation marks omitted).

         "The party seeking class certification bears the burden of establishing by a preponderance of the evidence that each of Rule 23's requirements have been met." Johnson v. Nextel Comma 'ns Inc.,780 F.3d 128, 137 (2d Cir. 2015); see also Dukes, 564 U.S. at 350 ("Rule 23 does not set forth a mere pleading standard. A party seeking class certification must affirmatively demonstrate his compliance with the Rule - that is, he must be prepared to prove that there are in fact sufficiently numerous parties, common question of law or fact, etc.") (emphasis in original). Accordingly, although a Rule 23 inquiry should not "extend into a protracted mini-trial of substantial portions of the underlying litigation, " the "district judge must receive enough evidence, by affidavits, documents, or testimony, " including expert evidence as appropriate, to "be satisfied" that the necessary elements of class certification have been established. In re IPO,471F.3dat 41; see also ...


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