Last week, the legal team at Korein Tillery as well as Kellogg, Huber, Hansen, Todd, Evans & Figel and Wollmuth Maher & Deutsch filed a complaint in federal court against Deutsche Bank National Trust Company. The complaint states that Deutsche Bank National Trust Company failed to comply with its basic duties as trustee of 121 trusts that issued residential mortgage-backed securities (RMBS) worth $140 billion originally.
State and federal law, including the Trust Indenture Act of 1939 (TIA) as well as a New York law known as the Streit Act, require that a trustee, in this case Deutsche Bank National Trust Company, comply with a series of rules and regulations set up to protect the trust beneficiaries. The trust beneficiaries in this case included, among others, five corporate credit unions-U.S. Central FCU, Western Corporate FCU, Members United FCU, Southwest Corporate FCU, and Constitution Corporate FCU-all of which subsequently failed. Following their failure, the National Credit Union Administration Board (NCUA Board)-an independent federal agency that, among other things, charters and regulates federal credit unions-placed the corporate credit unions into liquidation and appointed itself as liquidating agent.
The complaint, filed on November 7 by the NCUA Board as liquidating agent, alleges that Deutsche Bank National Trust Company, serving as trustee, failed to protect the trust beneficiaries in violation of the TIA in at least three ways. First, it was Deutsche Bank National Trust Company’s responsibility to organize and review all of the mortgage files, ensuring their completeness and accuracy. Second, if there were any breaches of the representations or warranties concerning the mortgage loans, Deutsche Bank National Trust Company was required to notify the appropriate parties and then take sufficient steps in remedying the problems by curing, substituting, or repurchasing the defective mortgage loans. Third, if Deutsche Bank National Trust Company is notified of or discovers a default with respect to a mortgage loan, it must investigate the defaults, notify the trust beneficiaries, and take appropriate action to remedy those defaults.
The complaint goes on to state, “As a participant in many roles in the securitization process, Defendant was economically intertwined with the parties it was supposed to police…Despite Defendant’s knowledge of these ongoing defaults and events of default, Defendant failed to act prudently to protect the interests of the trusts and certificateholders…Because of the widespread misconduct in the securitization process, Defendant had incentives to ignore other parties’ misconduct in order to avoid drawing attention to its own misconduct. Thus Defendant failed and unreasonably refused to take action to protect the trusts and [trust beneficiaries] against responsible party breaches. Indeed, it is precisely this type of trustee complicity and inaction that led Congress to enact the TIA to ‘meet the problems and eliminate the practices’ that plagues Depression-era trustee arrangements and provide investors with a remedy for trustees that utterly neglect their obligations.”
The complaint seeks an award of all damages plus pre- and post-judgment interest in an amount to be determined at trial.