STS Partners Fund, LP, et al., Plaintiffs-Appellants-Respondents,
Deutsche Bank Securities, Inc., et al., Defendants-Respondents, Wells Fargo Bank, N.A., etc., Defendant-Respondent-Appellant.
Kasowitz, Benson, Torres & Friedman LLP, New York
(Michael A. Hanin of counsel), for appellants-respondents.
& Bird LLP, New York (John F. Cambria of counsel), for
Day, New York (Jayant W. Tambe of counsel), for respondents.
Sweeny, J.P., Acosta, Renwick, Moskowitz, Kahn, JJ.
Supreme Court, New York County (Eileen Bransten, J.), entered
June 24, 2016, which, to the extent appealed from, granted
the motion of defendants Deutsche Bank Securities, Inc. (DB
Securities) and Deutsche Mortgage Securities, Inc. (DB
Mortgage; together with DB Securities, the DB defendants) to
dismiss the supplemental complaint as against them, and
granted defendant Wells Fargo Bank, N.A.'s motion to
dismiss all claims except the third cause of action as
against it, unanimously modified, on the law, to grant Wells
Fargo's motion to dismiss the third cause of action to
the extent it is not based on the IRR Threshold, and
otherwise affirmed, without costs.
claims against the DB defendants were correctly dismissed
based on the no-action clause in the trust agreements.
Quadrant Structured Prods. Co., Ltd. v Vertin (23
N.Y.3d 549 ), which plaintiffs cite, did not involve
the termination of a trust. Read in context, the sentence on
which plaintiffs rely ("[T]he no-action clause applies
when the Trustee is authorized to decide whether to act; it
cannot serve as an outright prohibition on a suit filed by a
securityholder in the case where the Trustee is without
authorization to act" [ id. at 567]) means that
a no-action clause does not bar claims - such as breach of
fiduciary duty against a corporation's board of directors
- that an indenture trustee cannot bring. Notably, the Court
of Appeals ruled that "those claims sounding in breach
of contract and arising from the indenture are barred -
requiring the majority securityholders to bring those actions
through the Trustee" (id. at 569). The claims
that were dismissed included breach of the implied covenant
of good faith and fair dealing and tortious interference with
that covenant (id. at 558 n 10). Unlike the claims
in Quadrant that were not dismissed, plaintiffs'
claims all arise out of the trust agreements and the
if, arguendo, plaintiffs were third-party beneficiaries of
the trust agreements (see Walnut Place LLC v Countrywide
Home Loans, Inc., 35 Misc.3d 1207');">35 Misc.3d 1207 [A], 2012 NY Slip Op
50601[U], *1 n 2 [Sup Ct, NY County 2012], affd 96
A.D.3d 684 [1st Dept 2012]), the no-action clause would still
apply (see 96 A.D.3d at 684).
of the third cause of action as alleged that Wells Fargo
breached the trust agreements by executing the amendments
made by it and DB Mortgage was correctly dismissed, because
the plain language of section 9.01(a)(v) of the trust
agreements permitted those amendments (see generally
Quadrant, 25 N.Y.3d at 559-560).
of the third cause of action as alleges that
certificateholder consent was required to terminate the RS6
trust should also be dismissed, because, as sections 7.01 and
7.03 show, certificateholder consent was not the only way in
which the trust could terminate.
third cause of action should also be dismissed as against
Wells Fargo based on anything other than the IRR Threshold.
Both the original and amended trust agreements provide that
an auction of the underlying certificates must yield at least
the Minimum Auction Call Amount. Of the five components of
"Minimum Auction Call Amount, " only one - the IRR
Threshold - relates to the certificates held by plaintiffs
(the Class A-X Certificates).
contend that, in addition to the IRR Threshold, they had the
right to receive a Principal Distribution Amount, a payment
under the Cap Agreements, and the Class A-X Distribution
Amount for the final month of the RS6 trust's existence.
However, the documentary evidence submitted by defendants
shows that, as early as December 31, 2007, the Class A-X
Certificateholders had received their principal back. The
supplemental complaint does not allege that plaintiffs were
entitled to any amounts under the Cap Agreements, and
plaintiffs may not raise this issue for the first time on
appeal, because "the issue might have been obviated by
the submission of documentary evidence" (Ta-Chotani
v Doubleclick, Inc., 276 A.D.2d 313');">276 A.D.2d 313 [1st Dept 2000]).
respect to the Class A-X Distribution Amount, plaintiffs
admit that they received distributions from the RS6 trust
through August 2014. The trust was terminated on or about
September 12, 2014. Hence, there was no Distribution Date on
September 28, 2014; by definition, a Class A-X Distribution
Amount depends on a Distribution Date. The Final Distribution
Date depends on a notice pursuant to section 7.01, which was
respect to the IRR Threshold, Wells Fargo submitted
documentary evidence that, as of August 15, 2013, the
internal rate of return (IRR) for the RS6 Class A-X
Certificates was more than 128% and the IRR for the RS5 Class
A-X Certificates was more than 137%. However, the underlying
certificates for the RS6 trust were auctioned on September
12, 2014, and the underlying certificates for the RS5 trust
were auctioned on October 9, 2015. Since the trust agreements
define IRR as an annual rate, the 2013 reports from
PricewaterhouseCoopers do not utterly refute plaintiffs'
factual allegations or conclusively establish a defense as a
matter of law (see e.g. Goshen v Mutual Life Ins. Co. of
N.Y., 98 N.Y.2d 314, 326 ).
claim for breach of the implied covenant of good faith and
fair dealing was correctly dismissed as against Wells Fargo,
because section 6.01(e)(i) of the trust agreements states,
"[N]o implied covenants or obligations shall be read
into this Agreement against the Trustee" (see ...