New York State Appeals Court Upholds Decision Dismissing Buyback Lawsuit

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On June 28, the Appellate Division of the Supreme Court of New York, First Department unanimously confirmed the New York Supreme Court’s dismissal of a mortgage-buyback lawsuit brought by investors against a bank, holding that the investors’ action was barred by the “no-action” clause in the Pooling and Servicing Agreements (PSAs). Walnut Place LLC v. Countrywide Home Loans, Inc., No. 8046, 650497/11, 2012 slip op. 0521 (N.Y. App. Div. June 28, 2012). The Appellate Division found that the “no-action” clause—a clause limiting the right to sue—was not ambiguous and only allowed investors to sue under an “event of default” provision which was not applicable under the set of facts before the court. The case was brought by several entities collectively known as Walnut Place LLC, who had invested more than $1 billion in securities backed by the bank’s mortgages. The investors claimed that the bank made false representations about the characteristics and credit quality of loans underlying the securities in the PSAs.