The U.S. Court of Appeals for the 2nd Circuit has upheld a lower court's decision to dismiss a class-action brought by pension funds against BNY Mellon.
Among others, Chicago's police pension fund and the Grand Rapids, Michigan, city retirement fund sued BNY Mellon over claims related to losses from residential mortgage-backed securities suffered in the wake of the housing market crash.
BNY was trustee to 530 RMBS originated by Countrywide Home Loans. The plaintiffs alleged that BNY Mellon breached its fiduciary and trustee obligations by not overseeing the quality of the home loans built into the securities.
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The plaintiffs had sought to build a class of any investors that owned any of BNY's 530 mortgage securities.
In April of 2012, a U.S. District Court judge for the Southern District of New York granted BNY's motion to dismiss the case on the grounds that the named plaintiffs had only invested in 26 of the securities, and the pension funds did not have the "standing" to bring claims against securities they didn't own, according to court documents.
In upholding that decision, the appellate court deterred a much larger class-action, but did say the pension funds could bring claims against the 26 securities they actually invested in.
"In short, the nature of the claims in this case unavoidably generates significant differences in the proof that will be offered for each trust," wrote Circuit Judge Debra Ann Livingston.
In a further loss for the plaintiffs, the court also overturned the lower-court's ruling that the BNY Mellon mortgage securities were subject to the Trust Indentured Act, a law enacted in 1939 to address perceived abuses in the bond market.
The appellate court ruled that the BNY mortgaged investments were equity securities, not debt securities, and the Trust Indentured Act only applies to debt securities.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
