On June 22nd, Citibank, NA requested that a New York judge dismiss a proposed
class action suit regarding problems with toxic residential mortgage-backed
securities based on allegations the suit was inadequately pled.
Prudential Retirement Insurance Annuity Co. filed the lawsuit on behalf
of a group of investors, claiming that the bank breached contracts and
fiduciary duties as a trustee on 25 private-label-residential mortgage
back securities (“RMBS”) trusts from 2004 to 2007. These investors
claim that Citibank ignored ongoing problems regarding how $13.8 billion
in loans were written or serviced. The investors claimed the bank turned
a blind eye because it feared jeopardizing its relationship with loan
servicers including Washington Mutual, Lehman Brothers Holding Inc., and
According to the Complaint, “[t]he abysmal performance of the trust
collateral – including spiraling defaults, delinquencies, and foreclosures
– is outlined on monthly remittal reports that Citibank, as trustee,
publishes and publicly files with the government.” “Citibank
did nothing to protect the trusts and certificate holders, choosing instead
deliberately to ignore the egregious events of default for its own benefit
and to the detriment of the class.”
In direct response, Citibank argued the investors’ class action fails
to properly state facts to support the breach of contract claims accurately
and fabricates duties which Citibank had no obligation to perform.
In presenting the Motion to Dismiss to New York Supreme Court Judge Charles
Ramos, Citibank’s counsel argued that the bank has limited responsibilities
in its role as trustee for the twenty-five securitization pools at issue,
and the investors failed to allege the trustee discovered any loan-specific
breaches that would require Citibank to act.
Christopher J. Houpt of Mayer Brown LLP, counsel for Citibank, argued that,
“ The sole remedy the trustee has under the contract is to identify
the specific loan that has breached and put it back to the originator.
So unless the trustee has discovered specific breaches... how can you
put it back?”
Judge Ramos asked the investors’ counsel to explain how a trustee’s
duty is initiated if the trustee were unaware of the purported breach
of the warranties and representations of RMBS contracts.
Timothy Delange of Bernstein Litowitz Bergman & Grossman LLP, counsel
for the investors, said that Citibank was wrongfully advocating for a
heightened pleading standard when factual particularity is not required
at the pleading stage. He further argued that there were individual allegations
the trustee’s breach of loans in the complaint, and those allegations
were enough to defeat the Motion to Dismiss.
However, Citibank’s counsel argued that the investors are required
to allege facts that support allegations the trustee discovered breaches
on specific loans, and not simply argue there was a “risk”
of breaching. “At the pleading stage, the court does not have to
credit conclusory allegations,” he said.
Judge Ramos said he would permit the investors to amend their complaint
to add factual allegations and shed light on the claim that Citibank allegedly
knew about problems with their poor-performing loans. When referencing
similar suits against banks for breaching loan agreements, his tone was
derisive saying, “If all the plaintiffs are going to rely on is
the nonsense we have seen in some of these complaints, you are right,
and [Citibank] will win summary judgment.”
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