2nd Circuit holds NCUA lacks standing to bring derivative suit against two national banks regarding RMBS claims

Courts Second Circuit Appellate RMBS Standing Securities

On August 2, the U.S. Court of Appeals for the 2nd Circuit held that the National Credit Union Administration (NCUA) lacked standing to bring a suit against two national banks on behalf of trusts created by the agency that held residential mortgage-backed securities (RMBS). According to the opinion, in 2009 and 2010, NCUA took control of five failing credit unions, including ownership of certificates the credit unions held in RMBS trusts. NCUA then transferred the certificates into new trusts and a financial institution was appointed, pursuant to an Indenture Agreement, as Indenture Trustee. NCUA subsequently brought derivative claims on behalf of the trusts against two national banks, trustees of the original RMBS trusts. In affirming the lower court’s dismissal of the claims, the appellate panel found that the NCUA did not have derivative standing to sue on behalf of the trusts because the trusts had granted the right, title, and interest to their assets, including the RMBS trusts, to the Indenture Trustee. The 2nd Circuit reasoned that therefore only the Indenture Trustee possesses the claims, and the NCUA did not have the right to sue on behalf of the Indenture Trustee under the Indenture Agreement.