A New York federal judge has refused to dismiss Commerzbank AG’s billion-dollar lawsuit against Bank of New York Mellon Corp. The complaint alleges that the bank failed to vet residential mortgage-backed securities it was supposed to oversee. Commerzbank says it had expected trusts full of bundled home mortgages to yield steady cash flows. However, it says the banks that oversaw the trusts fell asleep at the wheel around the time of the financial crisis. BNY Mellon was among the banks involved.
Commerzbank, a German company, is seeking more than $1 billion from BNY Mellon for allegedly shirking duties to act in its interests and to notify it of nonpayment issues for 72 trusts and another financial instrument known as a credit default obligation. Judge Daniels’ order stated:
Plaintiff alleges that BNYM received at least three written notices of servicing violations, which viewed in the light most favorable to plaintiff, plausibly alleges knowledge of events of default. Additionally, plaintiff alleges that BNYM discovered breaches through, among other things, BNYM’s involvement in other litigation where loan-level reviews revealed systemic breaches of representations and warranties.
However, several of the Plaintiff’s claims were dismissed. Judge Daniels said Commerzbank’s claims for breach of fiduciary duty and breach of the covenant of good faith and fair dealing were pretty much the same as the breach-of-contract claim and dismissed them. The claim to make BNY Mellon pay out under a state law known as the Streit Act was also thrown out. That law is meant to remove trustees, according to Judge Daniels, and didn’t fit the claim against the bank.
Commerzbank’s claim under the federal Trust Indenture Act was also pared down to apply to just four of the 72 trusts at issue. The remainder are so-called pooling and service agreement trusts, which Judge Daniels said the Second Circuit has concluded are not covered by the TIA. The case is Commerzbank AG v. Bank of New York Mellon (case number 1:15-cv-10029) in U.S. District Court for the Southern District of New York.