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Wells Fargo obtains denial of class certification in RMBS trustee litigation alleging hundreds of millions of dollars in losses

Client(s) Wells Fargo Bank, National Association

Jones Day represents Wells Fargo Bank, N.A., in a putative class action alleging hundreds of millions of dollars in classwide losses to investors on notes issued by two residential mortgage backed securities (RMBS) trusts for which Wells Fargo serves as trustee. The named plaintiff, Royal Park Investments, SA/NV, alleges that Wells Fargo breached its duties under the trusts’ governing agreements. Royal Park sought certification of a class of current and former holders of the RMBS notes under Fed. R. Civ. P. 23(b)(3).

On January 10, 2018, Magistrate Judge Sarah Netburn issued a Report & Recommendation recommending that class certification be denied. See Royal Park Invs. SA/NV v. Wells Fargo Bank, N.A., No. 14-CV-9764, 2018 WL 739580 (S.D.N.Y. Jan. 10, 2018). Judge Netburn found that predominance was not met because individualized issues regarding class members’ standing, statutes of limitations, and damages predominated over the common issue of breach. She further concluded that Royal Park failed to establish superiority due to the unmanageability of the case and sophistication of the investors. In reaching those conclusions, Judge Netburn relied on, among other things, the report and testimony of Wells Fargo’s industry and trading expert, finding that the difficulty and individualized nature of tracing RMBS note ownership and determining injury and damages precluded certification.

On April 17, 2018, District Judge Katherine Polk Failla adopted Judge Netburn’s Report & Recommendation in full, overruling all objections to the R&R lodged by Royal Park. See Royal Park Invs. SA/NV v. Wells Fargo Bank, N.A., No. 14-CV-9764, 2018 WL 1831850 (S.D.N.Y. Apr. 17, 2018). In denying class certification, the court held that features of RMBS ownership and trading (e.g., single CUSIPs representing large tranches owned by multiple investors, over-the-counter trading in incremental amounts less than the full CUSIP, and lack of any public exchange) mean that highly individualized and “tortuous” inquiries would be necessary to identify the investors with rights to pursue claims. The court also noted the geographic dispersion of noteholders both throughout the United States and around the world, and concluded that the choice-of-law inquiries involved with determining the law governing the transfers of the RMBS notes, as well as the statutes of limitations, would overwhelm any common classwide issues regarding Wells Fargo’s conduct as trustee or alleged breaches of the indentures.

The decision significantly narrows the claims at issue in the case.

Royal Park Investments, SA/NV v. Wells Fargo Bank, N.A., No. 14-CV-09764 (S.D.N.Y.)