Key Points

  • The First Department unanimously modified a Manhattan Supreme Court summary judgment order in IKB's suit against U.S. Bank as trustee of RMBS trusts.
  • Article 77 approvals of U.S. Bank's 2014 acceptance of settlements did not preclude claims that it earlier failed to timely pursue repurchase claims against Citigroup and JPMorgan.
  • Liquidation of a loan does not, as a matter of law, end the trustee's reasonable time to enforce repurchase rights, so liquidated-loan mortgage file defect claims were reinstated.
  • Fact issues exist on Disclosed Noncompliance EODs drawn from Regulation AB Item 1122 reports, and IKB Deutsche Industriebank AG has standing to assert the 2008-2012 Contract Claims.
  • Servicer Claims for five HEAT trusts, all JPALT 2006-S4 claims and the CSAB 2006-4 ratings downgrade claim remain dismissed; whether the damages sought are barred consequential damages is unresolved.

A New York appeals court on Tuesday revived a series of claims accusing U.S. Bank of neglecting its duties as trustee of residential mortgage-backed securities trusts, ruling that court approval of the bank's 2014 decision to accept settlements with Citigroup and JPMorgan does not shield it from claims that it failed to act on the trusts' rights before then.

A five-justice panel of the Appellate Division, First Department, unanimously modified an October 2025 summary judgment order by Justice Anar Rathod Patel of Supreme Court, New York County, in the suit brought by IKB International S.A. and related plaintiffs. The unsigned decision, issued by Justices Moulton, Gesmer, Shulman, Hagler and Parker-Raso, reinstated claims tied to servicers' own compliance reports, claims over the Citigroup and JPMorgan Chase repurchase rights, and claims over defective files for loans that had already been liquidated.

The ruling rejects two defenses that had trimmed the investors' case: that earlier court approvals of the settlements preclude any challenge to the trustee's prior conduct, and that a trustee's time to enforce repurchase rights ends when a loan is liquidated. U.S. Bank kept several wins, including dismissal of servicer claims tied to five trusts and of all claims over a sixth trust whose claims the plaintiffs lacked standing to bring.

The suit, the panel wrote, involves "alleged breaches of defendant trustee's contractual duties with respect to various residential mortgage-backed securities (RMBS) trusts." The claims fall into three groups: the trustee's handling of servicer misconduct after an Event of Default, or EOD; its duty to demand that loan sellers buy back loans that breached their representations and warranties; and its duty to identify material defects in mortgage loan files and force a cure, repurchase or substitution.

The central reversal concerned issue preclusion. Justice Patel had dismissed claims that U.S. Bank failed to act against Citigroup and JPMorgan in trusts whose claims against those banks had been settled, reasoning that the Article 77 determinations foreclosed them. "The Article 77 determinations did not necessarily decide an issue that is decisive of the present action," the panel held.

The court relied on an Aug. 24, 2026, ruling by the U.S. District Court for the Southern District of New York in Pacific Life Insurance Co. v. U.S. Bank. While the Article 77 courts found the trustee acted reasonably in accepting the settlements, the panel wrote, quoting that decision, "[t]hat holding does not resolve the separate question of whether U.S. Bank previously breached its contractual duties under the PSAs by failing to timely act on its repurchase enforcement claims against Citigroup and JPMorgan." PSAs are the pooling and servicing agreements that govern the trusts. The point was "particularly true here," the panel added, because the repurchase claims "would likely be barred by the statute of limitations" by the time of the settlements.

On liquidated loans, the panel held that "the fact of liquidation does not cut off the trustee's 'reasonable time' to perform its repurchase enforcement duties as a matter of law." It distinguished its own 2023 decision in MLRN LLC v. U.S. Bank, which upheld dismissal of liquidated-loan claims, because the breach there arose from allowing loans subject to repurchase claims to liquidate. Here, the panel wrote, the alleged breach arose "from failing to timely pursue repurchase enforcement claims, which defendant could do even after liquidation," though the remedy would then be money damages rather than a forced repurchase.

The panel also found fact issues over Disclosed Noncompliance EODs, defaults triggered when servicers' compliance reports revealed their own failures to follow prudent servicing standards. Many of those disclosures appeared in platform-wide annual assessments under Regulation AB Item 1122. "These disclosures were nonetheless sufficiently trust-specific because any disclosed noncompliance may be assumed to permeate the trusts administered by that servicer," the court wrote. It added that the expiration of underlying repurchase claims was not a valid basis to dismiss servicer claims, whose remedy is not repurchase.

Searching the record, the panel granted the plaintiffs summary judgment on the standing of IKB Deutsche Industriebank AG to assert contract claims that accrued between December 2008, when IKB AG sold the certificates to Rio Debt Holdings (Ireland) Limited, and May 2012, when Rio assigned claims back. The assignment deed covered all claims Rio "may have obtained in connection with its purchase" from IKB AG, and the court said its plain text made extrinsic evidence of intent inappropriate.

U.S. Bank prevailed on other issues. The panel affirmed dismissal of servicer claims for five HEAT trusts, HEAT 2005-8, 2005-9, 2006-1, 2006-2 and 2006-4, for lack of the written notice of default the PSAs require, and dismissed a termination test claim for HEAT 2005-9 that the plaintiffs had abandoned. It upheld dismissal of all JPALT 2006-S4 claims because the certificate holder, Cede & Co., authorized Citibank to "permit" Rio to sue but never assigned Rio any rights. "Rio's entitlement was thus not a transfer of ownership but something more akin to an authorization to exercise rights belonging to another such as a power of attorney," the court wrote, so Rio could not pass the claims to the plaintiffs.

The panel also granted U.S. Bank dismissal of a ratings-downgrade claim for the CSAB 2006-4 trust. Moody's "+" and "-" modifiers are not separate rating levels, it held, so Bank of America's drop as a prime-loan servicer from SQ1 to SQ2- was one level, short of the two-level downgrade the PSA requires for a default.

The court left open a damages question. The plaintiffs sought what they would have received had the trustee enforced repurchase rights and servicing standards, and the panel said it is unclear whether those amounts are consequential damages, which certain trusts' terms bar. "The parties contemplated that defendant would undertake certain enforcement duties, and the asserted losses at least arguably represent the natural and probable consequence of its failure to do so," the panel wrote.

Lawyers for the plaintiffs included John J.D. McFerrin-Clancy of McFerrin-Clancy LLC; U.S. Bank was represented by Michael T. Marcucci of Jones Day.

The decision, entered Oct. 6, remains uncorrected and subject to revision before publication in the Official Reports.