United States District Court, D. Connecticut
TMI TRUST COMPANY, solely in its capacity as Separate Trustee of the SECURITIZED ASSET BACKED RECEIVABLES LLC TRUST 2006-WM2 SABR 2006-WM2, Plaintiff,
v.
WMC MORTGAGE, LLC f/k/a WMC MORTGAGE CORP., Defendant.
RULING ON APPLICATION FOR FURTHER STAY OF
PROCEEDINGS
CHARLES S. HAIGHT, JR. SENIOR UNITED STATES DISTRICT JUDGE.
This
diversity action is a civil suit for breach of contract. The
subject of the case is the Securitized Asset Backed
Receivables LLC Trust 2006-WM2 (“the Trust”). The
corpus of the Trust consists of several thousand residential
mortgages, which were pooled and securitized in a manner
permitting the sale of certificates in the Trust to
investors, who became “certificateholders.” The
certificateholders anticipated receiving, over time, shares
of the principal and interest payments made by the underlying
mortgagors.
The
Plaintiff in the action is TMI Trust Company, as Separate
Trustee of the Trust (“TMI” or “the
Trustee”), suing on behalf of all of the Trust's
certificateholders. The Defendant, WMC Mortgage, LLC
(“WMC”), originated or conveyed the mortgages.
TMI claims in the action that WMC's breaches of promises
made in the contracts governing the Trust render it liable
for the certificateholders' resulting economic loss. The
Ropes & Gray and Quinn Emanuel law firms are lead trial
counsel for TMI. The Jenner & Block firm is lead trial
counsel for WMC.
After
extensive motion practice and discovery, a bench trial was
held before this Court, followed by exchanges of proposed
findings of fact and conclusions of law, main and reply
post-trial briefs, and the final summations of counsel. The
various liability and damages questions presented for
decision by the Court are complex and complicated. The trial
advocacy on both sides of the case has been energetic and
skillful. The case became fully submitted.
The
Court's opinion, while in preparation, had not been
completed and no judgment had been filed when, by letter
dated February 8, 2019, the parties through counsel made a
joint application that “the Court stay this [a]ction
pending a potential settlement.” Doc. 332, at 1. That
letter advised the Court that WMC and two unnamed
certificateholders in the Trust had “recently reached
[a] tentative agreement regarding a settlement” that,
if accepted by TMI as Trustee, “would resolve all of
the claims in the [a]ction.” Id. Counsel's
letter said: “WMC requires additional time to document
the proposed settlement, and the Separate Trustee will
require time to seek investor input and evaluate the terms of
the proposed settlement once it is presented to the Separate
Trustee for review.” Id. Counsel requested
that the action be stayed “until March 8, 2019 for the
parties to undertake the steps outlined above, ” while
also undertaking to report the status by March 8.
Id.
The
Court granted that joint application in a text Order entered
on February 8, 2019, which stayed the action until March 8,
2019, required an update by that date, and allowed the
parties to request the “continuation of the stay for an
additional period of time for the parties to complete the
settlement.” Doc. 333 (internal brackets removed). The
Order did not recite the reasons for its entry, but they are
plain enough. Particularly in a difficult and complex case,
it is salutary for the parties to agree upon a mutually
satisfactory resolution, rather than continue their reliance
upon the uncertainties and significant expense of the
litigation process (including proceedings in the Court of
Appeals, if the losing party professes to perceive reversible
error on the part of the tria1 court). The consequence of the
stay order was to place completion of the Court's trial
opinion and entry of a judgment on hold.
That
was the state of the case when the Court received a letter
dated March 6, 2019, from the Patterson Belknap law firm (the
"Patterson Letter"). Doc. 334. The Patterson firm
identifies itself as counsel for three funds (collectively
“the Olifant Funds”), whom Patterson says are
“certificateholders holding approximately 17% of the
outstanding certificates” in the Trust in suit.
Id., at 1. The Olifant Funds, it is made clear, do
not include the two unnamed certificateholders described in
the February 8 stay application as having negotiated the
proposed settlement with WMC. See Id. On the
contrary, the Olifant Funds, represented by the Patterson
firm, criticize the proposed settlement as “grossly
inadequate to compensate the Trust and its certificateholders
for the claims asserted in this litigation, ” to such a
degree that the Olifant Funds are moved to condemn the
Trustee for acting “in violation of its duties to
protect the Trust's interests, ” id.
The
Patterson Letter asks the Court to “lift the stay on
March 8, 2019 and proceed to issue judgment in the
litigation.” Id., at 4. TMI and WMC, in
further letters of counsel, resist that request. Doc. 335,
336. They ask the Court to “continue the stay of the
[a]ction until April 5, 2019, ” for reasons set forth
in that Letter. Doc. 336, at 1. The Olifant Funds respond
that the “additional disclosures by WMC and the
Separate Trustee confirm that the continuation of the stay is
unwarranted.” Doc. 337, at 2.
For the
reasons that follow, the Court will GRANT the application of
TMI and WMC for a continuance of a stay and DENY the
application of the Olifant Funds for the completion and
filing of the Court's judgment at this time. I make these
orders in the exercise of my discretion as the trial judge.
The
submissions of TMI and WMC accurately refer to the Olifant
Funds as “Non-Parties” to the action tried before
this Court, now pending decision and judgment. See
Doc. 335. The parties are TMI, as Plaintiff and Trustee on
behalf of all certificateholders (including the Olifant
Funds), and WMC as Defendant. TMI as Trustee owes duties to
all certificateholders, including the Olifant Funds. The
Olifant Funds contend through counsel that the inadequacy of
the proposed global settlement, apparently binding upon all
certificateholders, which the Trustee is engaged in
considering, would if implemented violate duties the Trustee
owes to the Olifant Funds. The questions posed by the present
applications are not whether the Olifant Funds can make that
assertion and get a judge to listen to it; rather, the
questions are what is the proper vehicle for the assertion
and which judge will be listening.
WMC
undertakes to answer those questions in a letter dated March
6, 2019, which argues that if TMI as Trustee decides to
accept the settlement, “the proper judicial forum for
the Non-Parties [the Olifant Funds] to have their concerns
addressed is in a trust instruction proceeding (or other
proceeding before a court of competent jurisdiction) in which
a court will consider and decide whether TMI has reasonably
exercised its discretion.” Doc. 335, at 2-3. During the
continuing exchanges, counsel for the Olifant Funds nowhere
suggests that such a remedy is not available to the Olifant
Funds if their professed dissatisfaction with the proposed
settlement persists.
Indeed,
a comparable remedy was availed of in a closely related RMBS
case. When the captioned case was filed, sub nom. Law
Debenture Trust Co. v. WMC Mortgage, LLC, [1] it was
consolidated with three other RMBS cases which also involved
trusts created by residential mortgages originated by WMC. In
each of those three additional cases, the Trustee for
certificateholders was Deutsche Bank National Trust Company
(“Deutsche Bank”). The Deutsche Bank plaintiff
trustees were represented by the MoloLamken law firm. Law
Debenture was represented by Ropes & Gray.
At an
early stage in the litigation, counsel for Law Debenture (now
TMI) moved to vacate the consolidation of that case with the
Deutsche Bank cases. The Court granted that motion.
See 2017 WL 3401254, at *8 (D. Conn. Aug. 8, 2017).
The instant case thereupon proceeded on its own. The WMC RMBS
litigation in this Court has most recently been divided
between the Deutsche Bank v. WMC cases on the one
hand, and the TMI v. WMC case on the other.
As
noted, the case at bar, TMI v. WMC, eventually went
to trial. The Deutsche Bank v. WMC cases did not.
After discovery and motion practice, counsel for Deutsche
Bank and WMC announced the proposed settlement of those
cases, subject to MoloLamken, counsel for the Trustees,
obtaining authority to enter into them. This Court was asked
to stay proceedings in those cases while efforts to implement
the settlements went forward. I granted a series of
continuances for that purpose. I was told, ...