United States District Court, S.D. New York
NATIONAL CREDIT UNION ADMINISTRATION BOARD, et al., Plaintiffs,
HSBC BANK US, NATIONAL ASSOCIATION, Defendant.
ORDER AND ORDER
G. SCHOFIELD, UNITED STATES DISTRICT JUDGE
the National Credit Union Administration Board
(“NCUAB”), as liquidating agent for five
corporate credit unions, sue HSBC Bank USA, National
Association (“HSBC”) for HSBC's alleged
breach of contractual and fiduciary duties and the covenant
of good faith and for violation of the Streit Act and the
Trust Indenture Act of 1939. On September 12, 2018, NCUAB
moved for leave to file a supplemental First Amended
Complaint and substitute Graeme W. Bush (the “Separate
Trustee”) as Plaintiff for certain claims. In an
Opinion and Order, filed May 22, 2019 (the
“Order”), Magistrate Judge Sarah Netburn granted
Plaintiffs' motion. HSBC timely objected and moved to
vacate the Order. For the following reasons, the objection is
overruled and the motion to vacate is denied.
with the Order, the underlying facts and procedural history
brought this action on March 20, 2015, against HSBC, for
damages arising from five corporate credit unions'
purchase of residential mortgage-backed securities
(“RMBS”) certificates from thirty-seven trusts,
for which HSBC was acting as trustee. NCUAB also brought
similar suits against other banks, including U.S. Bank and
of NCUAB's liquidation of the credit unions, NCUAB
liquidated the distressed RMBS certificates held by the
credit unions and re-securitized and transferred the
certificates to newly-created NCUA Guaranteed Notes Trusts
(“NGN Trusts”). The NGN Trusts then issued NCUA
Guaranteed Notes (“NGN Notes”), under (i) an
Indenture Agreement between the NGN Trusts, as Issuers, and
the Bank of New York Mellon (“BNYM”), as
Indenture Trustee, and (ii) guaranty agreements among NCUAB
as Guarantor, the NGN Trusts and BNYM.
April 27, 2015, HSBC moved to dismiss the Complaint, arguing
in part that NCUAB lacked standing to sue on behalf of the
NGN Trusts. In July 2015, Judge Scheindlin, then assigned to
this case, denied the motion to dismiss, finding that while
NCUAB did not have direct standing, it may have derivative
standing to bring the NGN Trust-related Claims. The order
directed NCUAB to amend the Complaint to assert the claims
derivatively. See Nat'l Credit Union Admin. Bd. v.
HSBC Bank USA, Nat. Ass'n, 117 F.Supp.3d 392
(S.D.N.Y. 2015) (“HSBC I”). NCUAB filed
a First Amended Verified Derivative Complaint
(“FAC”), which Defendant answered.
the parties were briefing the first motion to dismiss in this
case, Judge Forrest granted a motion to dismiss in the suit
between NCUAB and U.S. Bank, ruling that NCUAB lacked
derivative standing to bring claims on behalf of the NGN
Trusts, but permitting the plaintiff to replead.
Nat'l Credit Union Admin. Bd. v. U.S. Bank Nat.
Ass'n, No. 14 Civ. 9928, 2015 WL 2359295, at *3-6
(S.D.N.Y. May 18, 2015) (“U.S. Bank I”).
Judge Forrest then granted a second motion to dismiss an
Amended Complaint against U.S. Bank, on grounds that NCUAB
was contractually foreclosed from asserting derivative
claims, pursuant to the Indenture Agreement, and that only
BNYM had the right to bring claims on behalf of the NGN
Trusts. Nat'l Credit Union Admin. Bd. v.
U.S. Bank Nat'l Ass'n, No. 14 Civ. 9928, 2016 WL
796850, at *9-10 (S.D.N.Y. Feb. 25, 2016) (“U.S.
Bank II”). A year later, Judge Failla similarly
granted in part a motion to dismiss by Wells Fargo, finding
that NCUAB lacked derivative standing in that case due to the
language in the Indenture Agreement. See BlackRock
Allocation Target Shares: Series S. Portfolio v. Wells Fargo
Bank, Nat'l Ass'n, 247 F.Supp.3d 377, 412-15
(S.D.N.Y. 2017) (“Wells Fargo I”).
Judge Forrest's rulings, NCUAB asked BNYM to appoint a
Separate Trustee to pursue the claims. BNYM then appointed
Graeme W. Bush as Separate Trustee, and NCUAB moved to
supplement its complaint and substitute the Separate Trustee
as Plaintiff in the U.S. Bank case. Judge Forrest denied the
motion, and NCUAB appealed. While the appeal was pending,
Judge Failla granted NCUAB's similar motion to supplement
the complaint and substitute the Separate Trustee as
Plaintiff in the Wells Fargo case. See BlackRock
Allocation Target Shares: Series S Portfolio v. Wells Fargo
Bank, Nat'l Ass'n, No. 14 Civ. 10067, 2017 WL
3610511, at *14-21 (S.D.N.Y. Aug. 21, 2017) (“Wells
August 2, 2018, the Second Circuit affirmed U.S. Bank
II, finding that NCUAB lacked derivative standing to sue
on behalf of either the NGN Trusts or the Indenture Trustee
“under the clear and unambiguous language of the Trust
and Indenture Agreements.” Nat'l Credit Union
Admin. Bd. v. U.S. Bank Nat'l Ass'n, 898 F.3d
243, 252 (2d Cir. 2018) (“U.S. Bank
III”). The Court of Appeals also found that Judge
Forrest had not abused her discretion in denying NCUAB's
motion to supplement its complaint and substitute the
Separate Trustee as Plaintiff. Id.
instant case, NCUAB moved for leave to file a supplemental
First Amended Complaint and to substitute the Separate
Trustee as Plaintiff for the NGN Trust-related Claims, on
September 12, 2018. The Order granted Plaintiffs' motion,
finding that NCUAB had not engaged in undue delay, bad faith,
or dilatory tactics, and that the requested relief was
neither futile nor unduly prejudicial to HSBC. HSBC timely
objected and moved to vacate.
Standard of Review
objections to a magistrate judge's ruling on
nondispositive matters, district courts must “modify or
set aside any part of the order that is clearly erroneous or
is contrary to law.” Fed.R.Civ.P. 72(a);
accord 28 U.S.C. § 636(b)(1)(A). The Order,
which grants leave to supplement the Complaint and substitute
the Separate Trustee, is a nondispositive matter. See
Fielding v. Tollaksen, 510 F.3d 175, 178 (2d Cir. 2007)
(“[A] district judge may refer nondispositive motions,
such as a motion to amend the complaint, to a magistrate
judge for [a] decision, ” subject to review under the
“clearly erroneous or contrary to law” standard);
see also Kilcullen ...