Skip to main content

Jury, Not Judge, Must Decide Meaning of Representations

Financial Services Blog

Financial Services Watch Blog
October 18, 2018

judge

Last month, New York’s intermediate appellate court reversed a grant of summary judgment in favor of plaintiff MBIA Ins. Corp.[1] MBIA, an insurer of RMBS trusts and a common plaintiff in this type of litigation, had sued Credit Suisse, the sponsor of the trusts.

The trial court had ruled as a matter of law that a “No Monetary Default” representation and warranty (R&W) encompassed borrower misrepresentation. The trial court also had ruled as a matter of law that the “Mortgage Loan Schedule” R&W guaranteed not just that the Mortgage Loan Schedule (MLS) had accurately transcribed information from the loan file, but also the underlying accuracy of the information in the MLS.

In a unanimous panel opinion authored by Judge Manzanet-Daniels, the Supreme Court Appellate Division reversed on both points. The Court held that both issues should be decided by the jury.

Regarding the “No Monetary Default” R&W, the Court followed its prior decision in Ambac Assur. Corp. v. Countrywide Home Loans, Inc. interpreting a materially-identical R&W.[2] The First Department had concluded that “the better course is to hold a trial to inquire into and develop the facts to clarify the relevant legal principles and their application to the [R&Ws].”[3]

Regarding the “Mortgage Loan Schedule” R&W, the Court again looked to previous case law, this time turning to Delaware. In Bear Stearns Mtge. Funding Trust 2007-AR2 v EMC Mtge., LLC, the Delaware Chancery Court had held that a trial was required to determine whether a materially-identical MLS Rep guaranteed “underlying truthfulness,” as opposed to “accurate transcription.”[4]

Both of these R&Ws,”No Monetary Default” and “Mortgage Loan Schedule”, have been frequently litigated in mortgage cases, and likely will be again in the future. The MBIA v. Credit Suiss ruling provides defendants (whether sponsors, originators, or others) with additional authority to resist summary judgment and, at a minimum, argue their cases to the fact-finder at trial.

 

[1] MBIA Ins. Corp. v. Credit Suisse Sec. (USA) LLC, 2018 BL 330243 (App Div, 1st Dept Sept. 13, 2018).

[2] 151 AD3d 83 (1st Dept 2017)

[3] Id. at 89

[4] 2014 Del Ch LEXIS 300, *5 (Del. Ch. 2014).

RELATED PEOPLE
Kenneth Duvall

Kenneth Duvall

Partner
YOU MIGHT ALSO LIKE
Financial Services Watch Blog April 11, 2014
Last week, Magistrate Judge David S. Cayer of the U.S. District Court for the Western District of North Carolina denied Bank of America’s motion to dismiss the Security and Exchange Commission’s claims against it in SEC v. Bank of America Corporation, et al. The SEC’s complaint is ...
Financial Services Watch Blog August 28, 2014
In what is being reported as the largest settlement ever between the U.S. and a single business entity, Attorney General Eric Holder and Associate Attorney General Tony West announced Thursday that Bank of America Corp. (“BofA”) has agreed to pay $16.65 billion to settle accusations by the Departmen...
Financial Services Watch Blog October 11, 2018
Last week, Lehman Brothers Holdings Inc. (“LBHI”) filed two new motions in its ongoing Southern District of New York Bankruptcy Court litigation against approximately 130 loan originators and brokers: (1) an Omnibus Motion for Leave to File Third Amended Complaints Pursuant to Rule 7015 of the Feder...
VIEW MORE