RMBS Trustee's Untimely-Filed Complaint Cannot Relate Back to Certificateholder's Suit on Behalf of Trust, Which Was Barred by Trust's No Action Clause

On February 19, 2019, the Court of Appeals issued a decision in U.S. Bank Natl. Assn. v. DLJ Mtge. Capital, Inc., 2019 NY Slip Op. 01168, holding that where a party without standing to bring an action on behalf of a trust under the trust’s no action clause timely brings an action on behalf a trust, that action is invalid for lack of standing and for that reason, if a trustee seeks to substitute in as plaintiff in that action after the statute of limitations has run, the action cannot be revived because there was not a valid, timely-filed action for the trustee’s motion to amend to relate back to, explaining:

DLJ served as seller and sponsor of three RMBS securitization trusts (the HEAT Trusts), each governed by a separate pooling and servicing agreement (PSA), containing various representations and warranties about the general underwriting practices and quality of the individual loans. The PSAs include mandatory remedial provisions, which require any party that discovers a breach to promptly notify the other relevant party, and upon notice, allows DLJ time to remedy the defect. Each PSA also includes a no action clause, which prevents certificate holders from pursuing an action under the PSAs, except in limited circumstances.

Within six years of the execution of the respective PSAs, a certificate holder filed a separate summons and notice claiming violations of the representations and warranties for each of the HEAT Trusts. After the limitations period elapsed, the Trustee notified DLJ of the alleged breaches and demanded DLJ cure or repurchase the non-compliant loans, in accordance with the sole remedy provisions. The Trustee later filed a consolidated complaint alleging claims for all three trusts.

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CPLR 203 (f) provides:

A claim asserted in an amended pleading is deemed to have been interposed at the time the claims in the original pleading were interposed, unless the original pleading does not give notice of the transactions, occurrences, or series of transactions or occurrences, to be proved pursuant to the amended pleading.

As our case law establishes, CPLR 203(f) applies only in those cases where a valid pre-existing action has been filed. In Goldberg v Camp Mikan-Recro (42 NY2d 1029 [1977]), the plaintiff commenced a timely wrongful death action in his own name following his son's death. At the time he filed the action, the father had not been appointed administrator of the son's estate. By the time the plaintiff was appointed administrator, the limitations period had expired and so the plaintiff sought to amend his complaint to relate back to the original action. The Court declined to apply CPLR 203(f) because the plaintiff lacked capacity to commence the original action so there was no pre-existing action to which it could relate back.

CPLR 203(f) has no application here because the certificate holder's pre-existing action was not valid. The lower courts concluded that under the no action clause, the certificate holder could not bring the action on behalf of itself, any other certificate holder, or the Trustee. Those conclusions are not at issue in this Court. Thus, the certificate holder's action was subject to dismissal, and there is no valid pre-existing action to which a claim in a subsequent amended pleading may relate back. The Trustee's contention that it may use the relation-back doctrine of CPLR 203(f) to cure the certificate holder's lack of a right to sue, and that it may therefore avoid any problem with the identity of the plaintiff upon re-filing pursuant to CPLR 205(a), is without merit.

(Internal quotations and citations omitted).

Schlam Stone & Dolan represents investors in RMBS actions against underwriters and trustees and in related proceedings, such as trust instruction proceedings where an RMBS trustee seeks court guidance regarding the management of an RMBS trust. If you or a client are RMBS investors and have questions regarding potential claims against a trustee or how to influence the trustee's prosecution of a put back action like the one at issue here, contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com.