Lowenstein Sandler’s Securities Litigation team has prevailed on a summary judgment motion, in a dispute over tens of millions of dollars held in reserves for a commercial mortgage-backed securities trust. The matter involves a dispute between different tranches of certificate holders over the proper allocation of funds taken as reserves. The funds had previously been paid to junior certificate holders, but were clawed back by the trust in 2018 to provide funding for present and future indemnification obligations of the trust. The junior certificate holders brought the action challenging the clawbacks and arguing that the funds should be distributed to the junior certificate holders. Appaloosa opposed, arguing that the senior certificate holders are the rightful beneficiaries of the monies.
In denying the junior certificate holders’ motion for summary judgment and granting Appaloosa’s summary judgment motion in its entirety the Court concluded: “Equity should not intervene to restructure a highly structured transaction to award the Junior Certificate Holders Trust funds to which they were never entitled.” The Court found that the senior certificate holders are entitled to the full amount of the reserves and that the junior certificate holders knew or should have known “that the PSA allocates realized losses on trust assets to certificates in ascending order of priority with the losses allocated to the most junior certificates with an outstanding balance first until the principal balance of those junior certificates is zero.”
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