TMI Trust Co. v. WMC Mortgage, LLC

          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, ...