United States District Court, D. Delaware
IKB INTERNATIONAL, S.A., in Liquidation and IKB DEUTSCHE INDUSTRIEBANK, A.G., Plaintiffs,
WILMINGTON TRUST COMPANY, as Trustee and any predecessors or successors thereto; M&T BANK CORPORATION as successor by merger to the WILMINGTON TRUST COMPANY, as Trustee, and any predecessors or successors thereto, Defendants, and CWABS TRUST 2005-HYB9; et al., Nominal Defendants.
MEMORANDUM & ORDER
E. Jones III United States District Judge
case before us arises from the smoking rubble of the epic
housing market collapse in the late 2000s. Plaintiffs, IKB
International, S.A. (“IKB S.A.”) and IKB Deutsche
Industriebank, A.G. (“IKB A.G.”), bring this
action against Defendants Wilmington Trust Company
(“Wilmington Trust”) and M&T Bank Corporation
(“M&T”) as successor by merger to Wilmington
Trust, alleging breach of contract and bad faith. Plaintiffs
also name fifteen Delaware statutory trusts as nominal
defendants. Presently pending before the Court is
Defendants' Motion to Dismiss pursuant to Rule 12(b)(6)
of the Federal Rules of Civil Procedure. (Doc. 61). For the
reasons that follow, we shall grant Defendants' Motion.
the facts from Plaintiffs' Complaint and assume them to
case proceeds against the backdrop of complex investment
vehicles known as residential mortgage-backed securities
(“securities”). The process of creating the
securities begins with the prospective homebuyer obtaining a
mortgage loan. (Compl. ¶ 38). The lenders who originate
these loans sell them in bulk to an affiliate of the bank
typically known as a “sponsor.” (Id.).
The sponsor creates an entity known as a
“depositor” who transfers (or
“deposits”) the pool of loans into a trust.
(Id.). In this case, several trusts were created in
Delaware pursuant to the Delaware Statutory Trust Act, 12
Del.C. §§ 3801, et seq. (Id.).
The trusts are governed by trust agreements. A trustee known
as the “owner trustee” acts on behalf of those
who hold certificates to the trust. To service the mortgage
loans held by the trust, the sponsor and depositor appoint
one or more entities to act as “servicers.”
(Id. at ¶ 42). The trust, referred to as the
“issuer, ” issues securities, which are
essentially bonds and pay a yield out of the cash flow
received from the mortgage loans. The securities are issued
pursuant to indenture agreements. An “indenture
trustee” is appointed and acts on behalf of the
noteholders, or the investors who purchase the securities. In
addition to the trust and indenture agreements, several other
agreements covering sales, servicing, and administration of
the loans and trusts interlock and work together as
“governing agreements, ” also referred to as the
case before us, IKB S.A. purchased thirty-two different
securities issued by various trusts between 2005 and 2007.
(Id. at ¶ 15). On November 20, 2008, IKB S.A.
sold four of these securities to unnamed third parties and
the remaining twenty-eight securities to IKB A.G.
(Id. at ¶ 16). Two weeks later, IKB A.G. sold
these securities to another company, Rio Debt Holdings
(Ireland) Limited (“Rio”), which then, over the
next few years, sold thirteen of the securities to other,
unnamed third parties. (Id. at ¶ 17). On May 9,
2012, and on December 22, 2015, Rio assigned all claims
arising from the fifteen securities it still owned back to
IKB A.G. (Id. at ¶ 18). The total value of
these fifteen securities when they were first purchased was
$168 million. (Id. at ¶ 1).
allege that Defendants breached their contractual obligation
to protect the trust estates by permitting other entities,
namely the Sellers, Indenture Trustees, and Servicers, to
breach their duties. The Sellers made
representations and warranties regarding the quality of the
loans transferred to the trusts. (Id. at ¶159).
The loans, however, were substantially lower quality than
represented. As a result of the misrepresentations, the
delinquency rates experienced by the trusts ranged from an
average of 24 percent to 31 percent between 2009 and 2011.
(Id. at ¶ 96). The Indenture Trustees,
meanwhile, failed to ensure that the loan files for the
mortgage loans in the trust were complete. (Id. at
¶ 83). Consequently, the Indenture Trustees also failed
to provide notice of defaults and demand that the Sellers
cure defective mortgage loans. (Id. at ¶ 72).
Finally, the Servicers frequently conducted the foreclosure
process imprudently, often with self-dealing, which resulted
in reduced realization from the foreclosure sales.
(Id. at ¶ 89). As a result of the alleged
failures, the trusts collectively lost a net value of over
$2.3 billion. (Id. at ¶ 95).
claim that these failures of the Sellers, Indenture Trustees,
and Servicers are equally failures of Wilmington Trust.
Plaintiffs allege that Wilmington Trust, as Owner Trustee of
the various trusts, had a duty to protect the trust estate
and ensure that the Indenture Trustees and Servicers complied
with their duties. (Id. at ¶ 98). Plaintiffs
claim that Wilmington Trust knew of the dire state of the
trusts and took no action. (Id. at ¶ 234).
Furthermore, Plaintiffs allege that Wilmington Trust failed
to give notices of defaults per the governing agreements.
(Id. at ¶ 315-16).
originally initiated this action by filing a Complaint in the
Supreme Court of New York on May 27, 2016. (Compl.). On June
24, 2016, Defendants timely removed the matter to the United
States District Court for the Southern District of New York.
(Doc. 1). On September 14, 2017, upon motion of Defendants to
transfer venue, the case was transferred to the District of
Delaware. (Doc. 35).
filed the instant Motion to Dismiss, with supporting brief,
on January 19, 2018. (Docs. 61, 62). Pursuant to a stipulated
modified briefing schedule, Plaintiffs timely filed their
answering brief on March 20, 2018. (Doc. 67). Defendants
filed their reply brief on April 19, 2018. (Doc. 72). Having
been fully briefed, the Motion is ripe for our review.
STANDARD OF REVIEW
considering a motion to dismiss pursuant to Rule 12(b)(6),
courts “accept all factual allegations as true,
construe the complaint in the light most favorable to the
plaintiff, and determine whether, under any reasonable
reading of the complaint, the plaintiff may be entitled to
relief.” Phillips v. County of Allegheny, 515
F.3d 224, 231 (3d Cir. 2008) (quoting Pinker v. Roche
Holdings, Ltd., 292 F.3d 361, 374 n.7 (3d Cir. 2002)).
In resolving a motion to dismiss pursuant to Rule 12(b)(6), a
court generally should consider only the allegations in the
complaint, as well as “documents that are attached to
or submitted with the complaint, . . . and any matters
incorporated by reference or integral to the claim, items
subject to judicial notice, matters of public record, orders,
[and] items appearing in the record of the case.”
Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260
(3d Cir. 2006).
12(b)(6) motion tests the sufficiency of the complaint
against the pleading requirements of Rule 8(a). Rule 8(a)(2)
requires that a complaint contain a short and plain statement
of the claim showing that the pleader is entitled to relief,
“in order to give the defendant fair notice of what the
claim is and the grounds upon which it rests.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting
Conley v. Gibson, 355 U.S. 41, 47 (1957)). While a
complaint attacked by a Rule 12(b)(6) motion to dismiss need
not contain detailed factual allegations, it must contain
“sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its
face.'” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009). To survive a motion to dismiss, a civil plaintiff
must allege facts that ‘raise a right to relief above
the speculative level. . . .” Victaulic Co. v.
Tieman, 499 F.3d 227, 235 (3d Cir. 2007) (quoting
Twombly, 550 U.S. at 555). Accordingly, to satisfy
the plausibility standard, the complaint must indicate that
defendant's liability is more than “a sheer
possibility.” Iqbal, 556 U.S. at 678.
“Where a complaint pleads facts that are ‘merely
consistent with' a defendant's liability, it
‘stops short of the line between possibility and
plausibility of entitlement to relief.'”
Id. (quoting Twombly, 550 U.S. at 557).
the two-pronged approach articulated in Twombly and
later formalized in Iqbal, a district court must
first identify all factual allegations that constitute
nothing more than “legal conclusions” or
“naked assertions.” Twombly, 550 U.S. at
555, 557. Such allegations are “not entitled to the
assumption of truth” and must be disregarded for
purposes of resolving a 12(b)(6) motion to dismiss.
Iqbal, 556 U.S. at 679. Next, the district court
must identify “the ‘nub' of the . . .
complaint - the well-pleaded, nonconclusory factual
allegation[s].” Id. Taking these allegations
as true, the district judge must then determine whether the
complaint states a plausible claim for relief. See
“a complaint may not be dismissed merely because it
appears unlikely that the plaintiff can prove those facts or
will ultimately prevail on the merits.”
Phillips, 515 F.3d at 231 (citing Twombly,
550 U.S. at 556-57). Rule 8 “does not impose a
probability requirement at the pleading stage, but instead
simply calls for enough facts to raise a reasonable
expectation that discovery will reveal evidence of the
necessary element.” Id. at 234.
sprawling Complaint, consisting of 329 paragraphs across 106
pages, alleges four claims against Wilmington Trust: (1) that
Wilmington Trust failed to enforce the obligations of the
various parties under the governing agreements with respect
to the mortgage loan files; (2) that Wilmington Trust was
aware of breaches of representations and warranties by the
Sellers and failed to provide notice of those breaches or
demand that the breaches and defaults be cured; (3) that
Wilmington Trust failed to protect investors with respect to
breaches by the Servicers by not compelling the Indenture
Trustees' obligation to enforce the trusts' rights;
and (4) that Wilmington Trust acted in bad faith by failing
to protect the trust estate and give notice of defaults.
Plaintiffs refer to the first three claims in their single
count for breach of contract. Plaintiffs' bad faith claim
also incorporates the first three breaches.
Trust argues that it was not responsible for any of the
duties Plaintiffs allege it breached. Wilmington Trust
further argues that Plaintiffs have failed to specify an
implied duty that Wilmington Trust breached in bad faith, and
that the bad faith claim itself is duplicative of the breach
of contract claim. Finally, Wilmington Trust suggests that
three bars to litigation necessarily limit Plaintiffs'
claims: (1) that IKB S.A. has no standing to assert claims,
(2) that certain claims are barred by a contractual provision
known as the “no action” clause, and (3) that
certain claims are barred by the statute of limitations. We
will begin with the three purported bars to litigation.
Bars to Litigation
Trust argues that IKB S.A. lacks standing to bring any claims
because it sold all of its securities to IKB A.G. and other
unnamed third parties. Wilmington Trust contends that the
securities are governed by New York state law, and that under
New York law, any claims related to the securities passed to
the buyer upon their sale. Plaintiffs counter that the law of
Luxembourg applies because the sale of IKB S.A.'s assets
“would have occurred” in Luxembourg. (Doc. 67, p.
21). Plaintiffs further assert that, under Luxembourg law,
claims accruing to a seller prior to the sale remain with the
seller even after the sale.
securities here were issued pursuant to the indenture
agreements, which all contain a choice of law provision
stating that the agreements are governed by New York law.
(Doc. 63-17). By including the choice of law provision, the
parties clearly intended to avoid a conflict-of-laws analysis
and apply New York law in determining parties'
“obligations, rights and remedies.” See
Ministers and Missionaries Ben. Bd. v. Snow, 45 N.E.3d
917, 918 (N.Y. 2015) (“where parties include a New York
choice-of-law clause in a contract, such a provision
demonstrates the parties' intent that courts not conduct
a conflict-of-laws analysis”). Plaintiffs' claims
here arise under the indenture agreements and the duties
pursuant to those agreements that Plaintiffs allege were
breached. By the express terms of the agreements, these
claims are governed by the law of New York. To find otherwise
would be to obliterate the choice-of-law provision and allow
any noteholder to circumvent the express terms of the
indenture agreements by selling its notes outside of New
York. “In interpreting a contract under New York law,
words and phrases . . . should be given their ...