NEW YORK–In a case that dates all the way back to the financial crisis of 2008, a court has provided partial wins to both NCUA and the defendant, Deutsche Bank, in a lawsuit involving Residential Mortgage-Backed Securities (RMBS), which were the culprit behind what is often referred to as the “corporate crisis.”
NCUA has alleged that Deutsche Bank failed to fulfill its duties as a trustee, causing losses to credit unions. Specifically, NCUA has alleged Deutsche Bank ignored issues with mortgages in several pre-financial crisis RMBS trusts in order protect its own financial interests. NCUA has argued that trustees discovering breaches are required under the relevant agreements to inform parties and ensure the warrantor cured, substituted, or repurchased defective loans.
Earlier Rulings
In the long running case, courts have ruled on:
- Statute of Limitations: The court agreed with Deutsche Bank that some claims related to the bank’s alleged failure to take repurchase action were time-barred by the California statute of limitations, as the trusts in question closed between 2006 and 2007, and roughly 75% of breach notices were received after the statute of limitations had expired.
- Breach of Contract: The court had previously allowed the NCUA to amend its complaint, finding that it had stated a claim for breach of contract.
- Dismissed Claims: Negligence and breach of fiduciary duty claims were previously barred by the economic loss doctrine.
- Standing to Sue: The NCUA was allowed to substitute itself as a direct plaintiff for some trusts to address standing issues.
A Win for NCUA
In the newest ruling, the United States District Court for the Southern District of New York has provided a mixed outcome for both parties. For NCUA, the biggest win is the court has ruled the case can proceed and either go before a jury unless the two parties reach a settlement in negotiations first.
Deutsche Bank has been involved in other related actions, including a $7.2 billion settlement with the Department of Justice in 2017 regarding its role in RMBS issuance, according to the Department of Justice website. In 2011, it reached a settlement of $145 million with the NCUA related to the failure of five credit unions due to RMBS sales.
