Royal Park Investments SA/NV (“Royal Park”), a Belgian investment fund, filed a class action on behalf of itself and similarly situated investors against Bank of New York Mellon Corporation (“BNYM”).  The complaint alleged that BNYM breached its obligations as a trustee of $1.12 billion in residential mortgage-backed securities (“RMBS”) when it failed to cure, substitute, and repurchase loans that did not comply with representations and warranties (“R&Ws”) contained in its governing documents, and more generally, when it failed to exercise its granted rights and powers with the same degree of care as a prudent person would after it learned about the occurrence of events of default.  BNYM responded with a motion to dismiss.

On March 2, 2016, U.S. District Judge Gregory H. Woods of the Federal District Court of Manhattan denied, in part, BNYM’s motion to dismiss.  Royal Park Invs. SA/NV v. Bank of N.Y. Mellon, No. 1:14-cv-6502, 2016 U.S. Dist. LEXIS 26793, at *2 (S.D.N.Y. Mar. 2, 2016).  In its decision, the Court evaluated the question of whether Royal Bank’s complaint “adequately [pled] that BNYM had actual knowledge of R&Ws breaches and the occurrence of an event of default, such that BNYM was subject to a heightened duty of care.”  Id., at *7.

To establish that BNYM had actual knowledge of R&Ws breaches, Royal Park pointed to extensive media coverage, congressional inquiries, other legal actions, and “historically unprecedented default rates.”  Id., at *15-16.  BNYM argued that these allegations were not enough to survive a motion to dismiss because Royal Park had not “plausibly alleged discovery of specific breaches of R&Ws and that the allegations [did] not establish actual, specific knowledge of the falsity of particular statements from which it is possible to infer awareness.”  Id., at *11.

The Court disagreed.  Id., at *14-15.  Citing to several other courts in the district, the Court emphasized that at the motion to dismiss stage, “the question is not whether in fact the Trustee    [ ] had [actual knowledge]” but instead, “the question . . . is whether plaintiffs have pled plausible facts supporting allegations of actual knowledge.”  Id., at *11-12.  Ultimately, the Court “join[ed] the chorus of judges in [its] district evaluating similar pleadings” and held that a majority of Royal Park’s claims survived BNYM’s motion to dismiss.  Id., at *16, 35-36.

This case highlights the “low bar” for plaintiffs at the motion to dismiss stage for RMBS claims.  Id., at *16.

Read the Court’s full opinion here.

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