New Jersey Federal Judge Partially Dismisses Claims Against RMBS Trustee

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On April 23, Judge William J. Martini of the U.S. District Court for the District of New Jersey granted in part U.S. Bank’s motion to dismiss investor VNB Realty, Inc.’s claims against the bank as trustee of two RMBS trusts. VNB alleges that U.S. Bank knew of wrongdoing in the trusts, including robo-signing and flawed underwriting practices by loan originators, but did not notify investors due to a conflict of interest. The court dismissed claims alleging breach of the duty of loyalty and breach of fiduciary duty as intrinsically part of VNB’s negligence claim. The court also dismissed plaintiff’s breach of contract claim and its related claim for breach of the implied covenant of good faith and fair dealing for failure to identify any specific duty that was allegedly breached. The court denied, however, the Trustee’s motion to dismiss the entire complaint based on the “no-action” clauses in the applicable Pooling and Servicing Agreements, based on its conclusion that demand would be futile because the plaintiff effectively would have been asking the Trustee to sue itself. The court also permitted claims alleging negligence and violations of the Trust Indenture Act to proceed. Decision.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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