IKB INTERNATIONAL v. BANK (2026)

Order, Supreme Court, New York County (Anar Rathod Patel, J.), entered on or about October 22, 2025, which granted in part and denied in part defendant's motion for summary judgment dismissing the complaint, and granted in part and denied in part plaintiffs' motion for partial summary judgment, as modified by an amended stipulation and order, same court and Justice, entered on or about November 14, 2o25, unanimously modified, on the law, to the extent of (a) denying defendant's motion for summary judgment with respect to the claims based on Disclosed Noncompliance EODs, and reinstating such claims, except to the extent they were undisclosed prior to summary judgment and/or unpleaded;  (b) denying defendant's motion for summary judgment with respect to the question of issue preclusion, and reinstating the Citigroup Inc. and JPMorgan Chase & Co. (JPMC) Claims to the extent they were dismissed solely on this ground;  (c) denying defendant's motion for summary judgment with respect to the timeliness of the Mortgage File Defect Claims related to loans liquidated outside the limitations period and reinstating these claims to the extent they were dismissed solely on this ground;  (d) upon a search of the record, granting plaintiffs summary judgment on the issue of plaintiff IKB Deutsche Industriebank AG's standing to assert the Contract Claims;  and (e) granting defendant's motion for summary judgment dismissing the post-Event Of Default (EOD) claims based on an alleged ratings downgrade EOD in CSAB 2006–4 and alleged termination test EODs in HEAT 2005–9, and otherwise affirmed, without costs.

There are three main categories of claims in this action, which involves alleged breaches of defendant trustee's contractual duties with respect to various residential mortgage-backed securities (RMBS) trusts.  The first category of claims (Servicer Claims) concerns defendant's alleged breaches of its duties after an Event of Default (EOD) related to the conduct of trust servicers.  The EODs in this category were of four types:  the issuance by servicers of compliance reports that disclosed the servicers' own noncompliance with prudent servicing standards (Disclosed Noncompliance EODs);  the issuance by the servicers of compliance reports that were not timely delivered or that otherwise failed to conform with applicable reporting requirements (Nonconforming Report EODs);  the downgrades of servicer quality ratings by ratings agencies (Ratings Downgrade EODs);  and the failure of servicers to meet Termination Tests set forth in the relevant Pooling and Servicing Agreements (PSAs).  The second category of claims arises from defendant's alleged breaches of its duties following a breach of the representations and warranties (R & W Claims) made by the underlying loan sellers or originators, and particularly from breaches of its duty to demand that the responsible parties repurchase the loan or replace it with a conforming loan and, if such demand was unsuccessful, to take action to enforce the trusts' repurchase rights.  The third category of claims (Mortgage File Defect Claims) arises from defendant's alleged breaches of its duties to identify material defects in the underlying mortgage loan files;  demand that the responsible party cure the defect, repurchase the loan, or substitute a conforming loan;  and, if unsuccessful, take action to enforce the trusts' repurchase rights.

The motion court properly dismissed the Servicer Claims based on EODs that were previously undisclosed or unpleaded.  This does not, however, represent (and thus was not a proper basis to dismiss) the entire universe of Servicer Claims.

The Servicer Claims with respect to the following five trusts were properly dismissed based on the absence of written notice to defendant of the occurrence of an EOD, as required by the relevant PSAs:  HEAT 2005–8, HEAT 2005–9, HEAT 2006–1, HEAT 2006–2, and HEAT 2006–4.  This includes all of the claims based on Ratings Downgrade EODs (except as to CSAB 2006–4, which is discussed below) plus all of the Nonconforming Report EODs (as identified in plaintiffs' reply brief on appeal).  The termination test EOD with respect to HEAT 2005–9 is properly dismissed as well because plaintiffs have abandoned any argument in support of that assertion.  In view of our disposition of this issue, we need not reach defendant's alternative arguments for dismissal of these claims.

However, issues of fact do exist with respect to the existence of Disclosed Noncompliance EODs. It is true that many of these disclosures were made in servicers' annual assessments of compliance under Regulation AB Item 1122, which are based on platform-wide sampling and which report issues with respect to servicer performance across all of a servicer's trusts.  These disclosures were nonetheless sufficiently trust-specific because any disclosed noncompliance may be assumed to permeate the trusts administered by that servicer (MLRN LLC v. U.S. Bank N.A., 75 Misc.3d 1222[A], 2022 N.Y. Slip Op 50640[U] [Sup Ct, N.Y. County 2022], mod 217 AD3d 576, 579 [1st Dept 2023] [indicating that 1122s may be evidence of disclosed noncompliance EODs notwithstanding that they represent a “platform-level assessment”].

It is undisputed that the R & W Claims involving EODs occurring after the trusts' underlying repurchase enforcement claims expired are properly dismissed as futile.  Defendant does not make any arguments with respect to the propriety of dismissing Mortgage File Defect Claims on this ground, focusing instead on Servicer Claims.  Insofar as the remedy for a Servicer Claim is not repurchase of the underlying loans, the futility of the underlying repurchase enforcement claims is not a valid basis to dismiss any Servicer Claims.

The repurchase-related claims involving an alleged failure to take action against Citigroup and JPMC in connection with trusts with already settled claims against these entities were improperly dismissed as precluded by the Article 77 determinations (see Pacific Life Ins. Co. v. U.S. Bank N.A., 2026 WL 2474676, *11–14, 2026 U.S. Dist LEXIS 190160, *28–35, [SD N.Y. Aug. 24, 2026, No. 16CV00555 (JAV) ];  see generally Buechel v. Bain, 97 N.Y.2d 295, 303–304 [2001], cert denied 535 U.S. 1096 [2002] ).  The Article 77 determinations did not necessarily decide an issue that is decisive of the present action.  While the Article 77 determinations found that defendant acted reasonably in accepting the settlement agreements in 2014, “[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” (see Pacific Life, 2026 WL 2474676, 13, 2026 U.S. Dist LEXIS 190160, *32).  That is particularly true here, where those repurchase enforcement claims “would likely be barred by the statute of limitations” at the time of the settlements (id.).  Accordingly, the Citigroup and JPMC Claims should be reinstated to the extent they were dismissed solely on this ground.

The Mortgage File Defect Claims with respect to loans liquidated outside the limitations period were improperly dismissed as untimely.  The fact of liquidation does not cut off the trustee's “reasonable time” to perform its repurchase enforcement duties as a matter of law (see generally MLRN LLC v. U.S. Bank, N.A., 217 AD3d 576, 580 [1st Dept 2023];  IKB Intl., S.A. v. Wells Fargo Bank, N.A., 208 AD3d 423, 429 [1st Dept 2022], mod 40 NY3d 27 [2023] [discussing reasonable time standard] ).  Although this Court held in MLRN that the motion court “properly dismissed as untimely the liquidated loan pre-EOD repurchase claims,” that case was distinguishable because the alleged breach arose out of allowing liquidation of loans which were subject to repurchase claims, with the result that any breach necessarily occurred, and the claims accrued, no later than liquidation (see 217 AD3d at 580).  By contrast, here, the alleged breach did not arise from allowing the loans to liquidate but from failing to timely pursue repurchase enforcement claims, which defendant could do even after liquidation, although in that event the remedy would be money damages rather than specific performance of the repurchase obligation (see Nomura Home Equity Loan, Inc., Series 2006–FM2 v Nomura Credit & Capital, Inc., 133 AD3d 96, 105–107 [1st Dept 2015], mod 30 NY3d 572 [2017] ).  Plaintiffs' separate argument that it is not clear which loans have been liquidated is not properly considered because it is factual in nature and was raised for the first time on appeal.  Accordingly, the Mortgage File Defect Claims should be reinstated to the extent they were dismissed solely on this ground.

Plaintiffs' claims with respect to JPALT 2006–S4 were properly dismissed pursuant to the so-called “negating” clause, which provides:  “Nothing in this Agreement or in the Certificates, express or implied, shall give to any Person, other than the parties to this Agreement and their successors hereunder and the Holders of the Certificates, any benefit or any legal or equitable right, power, remedy or claim under this Agreement.”  It is undisputed that nonparty Cede & Co. (Cede) was the registered owner, and thus the Holder, of the subject certificates.  As a result, it had the power, notwithstanding the negating clause, to assign to other parties the right to or to otherwise authorize such parties to bring claims with respect to these certificates (see NCUA Bd. v. U.S. Bank N.A., 439 F Supp 3d 275, 279 [SD N.Y.2020] ).  Cede did not, however, “assign” any rights to nonparty Rio Debt Holdings (Ireland) Limited (Rio).  Rather, Cede authorized nonparty Citibank N.A. to “permit” Rio to bring claims with respect to the certificates.  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 (see Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F3d 11, 17–18 [2d Cir1997] ).  Absent express language authorizing such a transfer, a power-of-attorney-type authorization does not permit a future assignment.  Accordingly, Rio lacked authority to assign any JPALT 2006–S4 claim to plaintiffs, and they therefore lacked standing to sue with respect to that trust.

Upon a search of the record, we find that it is clear as a matter of law that IKB AG has standing to assert breach of contract claims accruing between December 4, 2008 (the date of the Bonds Purchase Agreement by which IKB AG sold the Certificates to Rio) and May 9, 2012 (the date of the Assignment Deed by which Rio assigned certain claims back to IKB AG) (the Contract Claims).  The Assignment Deed assigned to IKB AG all claims Rio “may have obtained in connection with its purchase” of the certificates from IKB AG, “including but not limited to the Related Claims and Rights as defined in the Bonds Purchase Agreement.”  The parties appear to agree that the Contract Claims accrued directly to Rio in the first instance, not because of the terms of the Bonds Purchase Agreement but because Rio was the outright owner of the certificates during the period in which these claims accrued.  However, Rio would not have been the owner of the certificates during this time had it not been for its purchase of these certificates from IKB AG. The Contract Claims thus constitute claims Rio “may have obtained in connection with its purchase” of the certificates from IKB AG. It is immaterial that the Contract Claims were not expressly included within the “Related Claims and Rights” assigned by the Bonds Purchase Agreement, as the Assignment Deed is clear that the assigned claims “includ[e] but [are] not limited to the Related Claims and Rights as defined in the Bonds Purchase Agreement.”  Because this interpretation is based on the plain and unambiguous text of the Assignment Deed, resorting to extrinsic evidence of the parties' intent is inappropriate (see 112 W. 34th St. Assoc., LLC v 112–1400 Trade Props.  LLC, 95 AD3d 529, 531 [1st Dept 2012], lv denied 20 NY3d 854 [2012] ).

The Ratings Downgrade EOD with respect to CSAB 2006–4 was properly dismissed on the ground that no such EOD occurred.  It is clear from a plain reading of the Moody's rating scale that the “+” or “-” modifiers used by Moody's do not constitute rating “levels” within the meaning of the relevant PSA provision.  Consequently, the rating downgrade of Bank of America as a primary servicer of prime residential mortgage loans from SQ1 to SQ2– is a downgrade of only one level, and thus does not constitute an EOD, which requires a downgrade of at least two levels.  Although Bank of America's rating as a primary servicer of subprime residential mortgage loans was undisputedly downgraded by two levels—from SQ1– to SQ3+—this rating is not relevant to the CSAB 2006–4 trust, for which Bank of America would have been treated as a servicer of prime loans.

Finally, plaintiffs sought damages calculated as the amount of money plaintiffs would have received had defendant enforced the trusts' repurchase rights and the servicers' obligations to adhere to good servicing standards.  It is not clear whether damages so calculated constitute consequential damages, which cannot be recovered under the terms of certain trusts (see generally Biotronik A.G. v Conor Medsystems Ireland, Ltd., 22 NY3d 799, 805–08 [2014] ).  The fact that these are based on hypothetical events is not dispositive.  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.