Wells Fargo obtains summary judgement in class action ERISA lawsuit

Client(s) Wells Fargo Bank, National Association

In an important win for the securitization and corporate trust services industry, Jones Day obtained summary judgement for Wells Fargo Bank, National Association in a putative class action alleging breaches of fiduciary duty under ERISA. The complaint was brought by trustees of a multiemployer pension plan that invested in a series of residential mortgage-backed security (RMBS) trusts. The complaint alleged that the underlying mortgages were assets of the investing pension plans, and that the key defendants -- Ocwen Financial Corp. as Servicer and Wells Fargo as Master Servicer of the RMBS trusts -- were subject to ERISA fiduciary standards of care to the investing plans. Plaintiffs alleged that Ocwen breached its fiduciary duties to properly service the "plan assets" and that Wells Fargo breached its fiduciary duty to appropriately monitor and oversee Ocwen. The key determining the ERISA plan assets question was whether the securities issued by RMBS trusts constituted debt rather than equity under local law principles, and the case turned on the court's examination of the debt vs. equity features of the securities. The court focused its analysis on the trust indentures and certificate and note instruments and concluded that the relevant language provided the holders with rights that were indicative of debt instruments rather than equity. It thus granted defendants' motion in full, finding that the residential mortgages serviced by Ocwen did not constitute "plan assets" and thus no ERISA fiduciary standards of care attached to either Ocwen's role as mortgage servicer or to Wells Fargo as master servicer.

Powell, et al. v. Ocwen Financial Corporation, et al., No. 1-18-cv-01951 (S.D.N.Y.)