Bank of New York Mellon’s 2013 lawsuit against JPMorgan Chase is alive and well again—at least in part. On Thursday, a New York state appeals court revived the suit, which claims JPMorgan and its affiliate WMC Mortgage breached contracts when it failed to repurchase certain defective loans in 2006.
BNY also claimed that JPMorgan failed to provide notice of problems on the loans in question. This claim was also revived. However, the court denied to reinstate BNY’s other claims in its original lawsuit.
According to Law360, “BNY initiated the suit to compel either JPMAC or WMC to repurchase nearly 1,600 defective loans that MBS holders had flagged in a mortgage-backed securities trust administered by BNY. According to BNY, the terms of the trust agreements it had signed with JPMAC and WMC obligated WMC to buy back bad loans within 60 or 90 days of notification, or else JPMAC would have to repurchase them.”
In 2015, a court dismissed all claims under the suit entirely, citing a six-year statute of limitations on MBS contract litigation, as established in ACE Securities Corp. v. DB Structured Products Inc.
According to Judge Karla Moskowitz, a member of the five-judge panel in Thursday’s appeals court, JPMorgan Chase’s six-year obligation to safeguard WMC didn’t stop when its obligation to repurchase the loans did. It instead will end six years after WMB actually failed to make the repurchase.
“To the extent the backstop obligation is attached to a valid WMC liability—albeit one that cannot be enforced against WMC because it is time-barred—the JPMAC obligation came into existence when WMC failed to repurchase,” Moskowitz said.
The court also determined that BNY could still push for JPMorgan to repurchase some defective loans from 2012—but not WMC. Additionally, the bank can also seek breach of contract damages for JPMorgan’s failure to notify BNY of the faulty loans.
“The court also found that BNY could pursue its claim against JPMorgan for allegedly breaching its duty to provide notice of faulty loans, ruling that this obligation was separate from the contract provisions that imposed the repurchase obligation,” Law360 reported.