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April 2017: Structured Finance Victory

April 2017

On March 9, 2017, in matter of first impression, New York’s First Department appellate court ruled that Quinn Emanuel’s client Computershare Trust Company had standing to bring suit on behalf of a residential mortgage-backed securitization trust, even though Computershare is not the trustee. Computershare, acting as the trust’s separate Securities Administrator had filed a complaint in New York’s Supreme Court against the trust’s sponsor, Natixis Real Estate Capital, for breaches of representations and warranties relating to the quality of the mortgage loans Natixis sold to the trust. Natixis moved to dismiss the complaint, arguing that Computershare lacked standing to sue and only a trustee could bring suit on behalf of a trust. Natixis also sought to dismiss on other grounds, including that the complaint was not timely and that the claims were not ripe. Justice Friedman of the Supreme Court denied Natixis’s motion to dismiss, holding the Securities Administrator had standing and rejecting Natixis’s timeliness and ripeness arguments.

The New York Appellate Division, First Department, affirmed Justice Friedman’s ruling, holding that entities other than trustees may bring breach of warranty claims on behalf of a securitization trust, hence the Securities Administrator had standing. The court rejected Natixis’s argument that only a trustee may bring suit on behalf of a securitization trust, and held that, under New York law, the Securities Administrator did not need to have been delegated the power to bring suit by the trustee because the operative trust document gave the Securities Administrator that power directly. The Court also rejected Natixis’s argument that a contractual provision requiring the Securities Administrator to act when so directed by the trust’s depositor deprived the Administrator of the power to act on its own initiative under a separate provision. The First Department also affirmed the court’s decisions that the complaint was timely and the claims were ripe.

This decision created valuable new precedent in the First Department that mortgage securitization trust documents granting enforcement powers to non-trustees are valid, and that such non-trustees may enforce the contractual rights of securitization trusts. This ruling should give parties creating mortgage securitization trusts more flexibility in allocating power to enforce the trust’s legal rights in court and streamline the ability of appropriate non-trustees to bring such enforcement actions.