SDNY Declines to Reconsider Denial of Plaintiffs’ Summary Judgment Motion in RMBS Putback Case

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On February 25, 2015, Judge P. Kevin Castel of the S.D.N.Y. issued an opinion denying reconsideration of a January 9, 2015 order that granted in part and denied in part the parties’ competing motions for summary judgment in MASTR Adjustable Rate Mortgages Trust 2006-OA2 v. UBS Real Estate Secs., Inc., 1:12-cv-07322 (S.D.N.Y.). The plaintiff trusts moved the court for reconsideration of the prior ruling to the extent it (i) denied the trusts’ motion for summary judgment as to a purported repurchase obligation for a specified percentage of the underlying loan pool based on statistical sampling, and (ii) dismissed the trusts’ claims based on a “pervasive breach” theory. First, the Court concluded that plaintiff’s submission of the results of their experts’ re-underwriting of a sample of loans in which the experts concluded that 37% of the sampled loans were “materially defective” was not sufficient to require repurchase of 37% of the entire loan pool. Judge Castel reasoned that the reunderwriting conclusions “did not align with the materiality requirement of the parties’ agreements,” which require that the breach of a representation “materially and adversely affect the interest of the Certificateholders” in order to trigger a repurchase obligation. Second, the Court reaffirmed its prior rejection of the plaintiffs’ “pervasive breach” theory, by which they argued that notice of “many” defective loans put the sponsor on inquiry notice and triggered an obligation to repurchase all defective loans. The Court relied on the parties’ agreements, explaining that the parties could have, but did not, bargain for an inquiry notice standard. Order.

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