On September 23, 2014, the parties in this litigation reached a settlement, with Bank of America Corp. and U.S. Bancorp agreeing to pay $69 million to settle a class suit over their role as trustee for mortgage-backed securities (“MBS”) containing shoddy loans issued by Washington Mutual Inc., (“WaMu”) which collapsed at the height of the 2008 financial crisis.
Filed in April 2012, this class action alleged that Defendants, as trustees for the Covered Trusts, breached their contractual responsibilities and violated the federal Trust Indenture Act of 1939, as amended, 15 U.S.C. 77aaa et seq., by failing to cause the substitution or repurchase of mortgage loans with allegedly uncured document deficiencies or that allegedly breached representations and warranties by the entities that sold the mortgage loans to the Covered Trusts. These defective mortgages caused credit losses to the 50 Covered Trusts included in the settlement and caused out-of-pocket losses to investors.
The claims alleged by Plaintiffs involved novel and complex legal and factual issues. There was little established precedent for litigation under the federal Trust Indenture Act, much less, such litigation on a class-wide basis. At the time this case was commenced, only a single court had sustained claims under the theories asserted here for purchasers of RMBS, Ret. Bd. of the Policemen's Annuity & Benefit Fund v. Bank of N.Y. Mellon, 914 F. Supp. 2d 422 (S.D.N.Y. 2012) decision, and that decision was certified for interlocutory appeal to the Second Circuit. Ret. Bd. of the Policemen's Annuity & Benefit Fund of Chi. v. Bank of N.Y. Mellon, 2013 U.S. Dist. LEXIS 20214 (S.D.N.Y. Feb. 14, 2013), which appeal is still pending. Nor had any court certified an MBS class alleging these contractual and statutory claims or accepted plaintiffs’ damages theories arising from such claims.
Moreover, by the time the Settlement was reached, this Action had been thoroughly litigated, including having: (1) briefed and argued two motions to dismiss, (2) briefed and argued class certification, (3) briefed and argued two partial summary judgment motions; (4) conducted and nearly completed fact discovery, which included: reviewing/producing more than 3 million pages of documents and taking/defending a total of 33 party and non-party depositions; and, (5) prepared expert reports in support of class certification, including a report from an expert on loan sampling methodology and an expert on damages methodology.