This is the Court of Appeals’ most recent case addressing the timeliness of RMBS-related claims in the wake of the 2007-2008 financial crisis. The specific question raised in this case is whether New York’s borrowing statute requires application of another state’s statute of limitations to an RMBS trustee’s loan-repurchase claims where the trustee is headquartered outside of New York.
The Court of Appeals has addressed the timeliness of RMBS-related claims in two cases. First, in ACE Sec. Corp., Home Equity Loan Tr., Series 2006-SL2 v. DB Structured Prods., Inc., 25 N.Y.3d 581 (2015), the Court held that a trustee’s claim for breach of representations and warranties about the underlying loans in an RMBS trust accrued–and thus the state’s six-year statute of limitations for breach of contract began to run–on the date the transaction creating the trust closed. The Court rejected the argument that the trustee’s claim accrued later, when when the sponsor refused to repurchase or cure the loans as to which misrepresentations were alleged. The sponsor’s repurchase / cure obligation was merely a remedy for breach, and not a condition of the sponsor’s contractual performance (i.e., the making of true representations) giving rise to the trustee’s claim for breach.
The Court largely reaffirmed its ACE holding several years later in Deutsche Bank Nat’l Tr. Co. v. Flagstar Capital Markets Corp., 32 N.Y.3d 139 (2018). The RMBS trust agreement in that case stated that a cause of action for breach of loan-level representations “shall accrue” after the sponsor refuses a repurchase / cure demand. The Court held that this language did not create a condition precedent to the sponsor’s performance vis-a-vis the loan-level representations; it merely defined the trustee’s remedy for a breach of those representations. And to the extent that the parties intended the “shall accrue” provision to extend the applicable limitations period, the Court held that the provision was unenforceable as against the state’s “strong public policy.” Thus, as in ACE, the claim for breach in Flagstar accrued and the six-year limitations period began to run when the RMBS transaction closed.
In this case, the sponsors moved to dismiss the trustee’s RMBS loan-repurchase claims on timeliness grounds, arguing that those claims were subject to California’s four-year statute of limitations pursuant to New York’s borrowing statute, see CPLR 202, because the trustee was headquartered in California. Supreme Court, New York County (Friedman, J.) denied the motions, but the First Department reversed, applying the “general rule” that a claim for economic injury accrues “in the jurisdiction of the plaintiff’s residence.” The Court of Appeals granted leave to appeal.
Return to the case page for Deutsche Bank v. Barclays / Deutsche Bank v. HSBC.