US judge tosses most of Commerzbank $1 billion mortgage lawsuit against BNY Mellon

By Jonathan Stempel

NEW YORK (Reuters) - A U.S. judge on Monday dismissed most of a lawsuit where Germany's Commerzbank sought to hold Bank of New York Mellon liable for more than $1 billion of losses on toxic mortgages purchased before the 2008 global financial crisis.

U.S. District Judge George Daniels in Manhattan rejected Commerzbank's claims on all but 13 of the 100 certificates and notes it bought, and dismissed all negligence claims against BNY Mellon, which had been serving as trustee.

The securities had been issued from 72 residential mortgage-backed securities (RMBS) trusts and a collateralized debt obligation that had been backed by home loans from Countrywide, NovaStar and other lenders.


Dave Wollmuth, a lawyer for Commerzbank, declined to comment. A lawyer for BNY Mellon also declined to comment.

Investors suffered huge losses before, during and after the financial crisis on RMBS they once thought safe, prompting a slew of litigation against lenders, servicers and trustees over more than a decade.

Trustees handle back-office work after securities are sold, and ensure that investors receive payments.

They have long said their contracts shielded them from liability for RMBS losses, and that particularly sophisticated investors should have known the risks.

In its December 2015 complaint, Commerzbank accused BNY Mellon of sitting "idly" as losses piled up, rather than force lenders to buy back and servicers to address troubled loans.

Daniels, however, said Commerzbank lacked standing to sue over 76 securities because it sold them before suing, and waited too long under German law to sue over 11 other certificates.

He also said recent rulings including a June decision by New York state's highest court, the Court of Appeals, required dismissal of Commerzbank's negligence claims because they essentially duplicated its breach-of-contract claims.

The surviving claims cover 13 certificates that Commerzbank bought from Barrington II CDO Ltd, but only as to whether BNY Mellon acted as a "prudent person" following borrower defaults.

The case is Commerzbank AG v. The Bank of New York Mellon et al, U.S. District Court, Southern District of New York, No. 15-10029.

(Reporting by Jonathan Stempel in New York; editing by Grant McCool)