The Firm obtained an appellate victory in the Supreme Court of the State of New York, Appellate Division, First Department on behalf of an investment vehicle that seeks hundreds of millions of dollars in damages against an RMBS trustee. See MLRN LLC v. U.S. Bank N.A., No. 2020-00886 (1st Dep’t 2021) (NYSCEF No. 27). The First Department’s ruling rejected U.S. Bank’s appeal of a decision by Commercial Division Justice Andrew Borrok that denied defendant’s motion to dismiss in almost all respects.

The issue on appeal was whether a “No Action” clause in the governing agreements barred a suit by an RMBS Certificateholder against an RMBS trustee. The First Department previously held in Blackrock Balanced Capital Portfolio (FI) v U.S. Bank N.A., 165 A.D.3d 526 (1st Dep’t 2018), that a “No Action” clause does not bar Certificateholder lawsuits against RMBS Trustees for their own wrongdoing. On appeal, U.S Bank suggested the Blackrock decision was wrongly decided and should be distinguished or overruled. In seeking to overturn this precedent, U.S. Bank contended that even if demand upon the trustee is excused (as it would be absurd to require the trustee to sue itself), Certificateholders should still have to comply with the remaining provisions of a “No Action” clause—that Certificateholders must aggregate 25% of the investors to agree to sue the trustee and provide indemnity to the trustee.

Following briefing and oral argument, the First Department unanimously rejected U.S. Bank’s appeal and adopted the Firm’s arguments that U.S. Bank is precluded from re-litigating the same issue it raised, and lost, in BlackRock. The First Department explicitly reiterated its prior holding: “Once performance of the demand requirement in the no-action clause is excused, performance of the entire provision is excused, including the requirement that demand be made by 25% of the certificate holders.” Blackrock, 165 AD3d at 528. The case now continues in the trial court.

A copy of the First Department’s decision is available here.