Second Circuit Slashes Servicer Win, Says REMIC Certificates Create 'Beneficial Interests'

LitNews.ai Staff · March 26, 2026 · Second Circuit

Panel: Circuit Judge Chin, Circuit Judge Carney, Circuit Judge Sullivan

The Second Circuit on Tuesday partially reversed a New York federal judge's grant of summary judgment for Ocwen Financial Corp. and Wells Fargo Bank N.A., ruling that pension fund trustees' investments in some mortgage-backed securities qualify as ERISA plan assets, with the court stating that "beneficial interest[s] in a trust are equity interests" under federal regulations.

The case involved trustees of the United Food & Commercial Workers Union & Employers Midwest Pension Fund who invested in residential mortgage-backed securities issued by six trusts and sued the mortgage servicers for alleged ERISA violations. The plan invested in notes issued by three Delaware statutory trusts under indenture agreements and certificates issued by three REMIC trusts governed under New York law, with Ocwen serving as the mortgage servicer for all six trusts and Wells Fargo acting as master servicer for three of them.

The three-judge panel led by Circuit Judge Richard Sullivan distinguished between the two types of investments, finding that indenture notes lacked substantial equity features while REMIC certificates represented beneficial interests in trusts. "The vital difference between an equity holder and a debt holder is that the former is an adventurer in the corporate business; he takes the risk, and profits from success," Sullivan wrote, explaining that the indenture notes reflected "a traditional debt structure, exposing the noteholders only to classic credit risks." For the REMIC trusts, however, the court found that trust agreements "make clear that holders of the trusts' regular-interest certificates are beneficiaries of those trusts."

The district court had granted summary judgment for all defendants in June 2023, concluding that both the notes and certificates would be treated as indebtedness with no substantial equity features under Department of Labor regulations. The court had converted the defendants' motions to dismiss into summary judgment motions and allowed limited discovery on whether the underlying mortgages qualified as plan assets and whether Ocwen acted in a fiduciary capacity.

The Second Circuit remanded the case for the district court to determine whether Ocwen acted in a fiduciary capacity regarding the mortgages underlying the three REMIC trusts. The ruling could have broader implications for ERISA litigation involving complex financial instruments, as it clarifies when mortgage-backed securities qualify as plan assets subject to federal fiduciary protections.

Counsel

The trustees are represented by R. Bradley Miller of R. Bradley Miller Law and Gary A. Gotto and Ron Kilgard of Keller Rohrback L.L.P.

Wells Fargo is represented by Yaakov M. Roth, Evan Miller, and David T. Raimer of Jones Day and Howard F. Sidman and Amanda L. Dollinger of Jones Day.

Ocwen is represented by Anton Metlitsky and Jenya Godina of O'Melveny & Myers LLP and Richard A. Jacobsen, Thomas N. Kidera, and Aaron M. Rubin of Orrick, Herrington & Sutcliffe LLP.

Case: The case is Powell v. Ocwen Financial Corporation, case number 23-999, in the U.S. Court of Appeals for the Second Circuit.

Court

Second Circuit

Case Name

Powell v. Ocwen Fin. Corp.

Docket

23-999