This Mellon's Mine, Says A District Judge

Bank of N.Y. Mellon v. Walnut Place LLC, No. 11 Civ. 5988 (WHP), 2011 WL 4953907 (S.D.N.Y. Oct. 19, 2011).

In this action, a federal court retained jurisdiction on a verified petition finding that the petitioner was not entitled to the securities exception under CAFA when its claim does not entirely depend on a mutual securities agreement, but rather requires other sources of law for its evaluation.

The Bank of New York Mellon ("BNYM"), as a trustee for hundreds of trusts, filed this petition under Article 77 of the New York Civil Practice Law and Rules in the New York Supreme Court, seeking to dispose billions of dollars in toxic mortgage claims. This billion-dollar disbursement action was a result of Countrywide Home Loans, Inc. and its various affiliates' (collectively, "Countrywide") securitization transactions entered into between 2004 and 2008. In these transactions, Countrywide conveyed portfolios of securitized residential mortgages through a third party to BNYM, as trustee, to hold in trust. In turn, investors purchased certificates or notes evidencing various categories of ownership interests in the trusts. BNYM acted as trustee for hundreds of those mortgage securitization trusts created by Pooling and Servicing Agreements ("PSAs") or Sale and Servicing Agreements.

The circumstances leading to this litigation began in June 2010, when at least one institutional investor holding mortgage-backed certificates issued by the trusts sent a letter to BNYM asserting that Countrywide had sold a large number of those mortgages into the trusts and failed to comply with certain representations and warranties. As a remedy, the investors contended that Countrywide and its present owner were obligated to repurchase the defaulting mortgage loans. BNYM concealed the identity of the pioneering investors, and attributed this action to a large group of investors under the banner "the Institutional Investors".

BNYM entered into an agreement with Countrywide to settle all potential claims belonging to 530 of the trusts for which BNYM served as trustee. Although the trusts' claims may exceed $150 billion, the Settlement Agreement required a payment of $8.5 billion to trust beneficiaries. The Settlement Agreement did not encompass 63 other trusts for which BNYM was trustee with a combined unpaid balance of approximately $15.3 billion as of September 26, 2011.

The Walnut Place entities (collectively, "Walnut Place"), the intervenor-respondents removed...