NEW YORK (Reuters) - Deutsche Bank AG must face a U.S. lawsuit seeking to hold it liable for causing $3.1 billion of investor losses by failing to properly monitor 10 trusts backed by toxic residential mortgages, a federal judge ruled on Wednesday.
U.S. District Judge Alison Nathan in Manhattan said Belgium’s Royal Park Investments SA/NV may pursue claims that the trustee Deutsche Bank National Trust Co ignored “widespread” deficiencies in how the underlying loans were underwritten and serviced, and failed to require that bad loans be repurchased.
Royal Park, which is seeking class-action status on behalf of other investors, said Deutsche Bank breached its fiduciary duties in part out of fear it might lose business or prompt retaliation over the German bank’s own problem loans.
“Plaintiff’s allegations of high default rates, large economic losses, and widespread investigation into RMBS securitization allow the court to draw the reasonable inference that defendant had actual knowledge” of defective loans, the judge wrote.
Nathan dismissed some secondary claims.
In its June 2014 complaint, Royal Park said its own securities had become “completely worthless.” The 10 trusts date from 2006 and 2007.
Deutsche Bank spokeswoman Oksana Poltavets declined to comment. Royal Park’s lawyers did not immediately respond to requests for comment.
Bond issuers appoint trustees to ensure that payments are funneled to investors, and handle back-office work after securities are sold.
Many investors have in recent years sued trustees, as well as lenders and underwriters, over losses on badly underwritten mortgages.
The case is Royal Park Investments SA/NV v. Deutsche Bank National Trust Co, U.S. District Court, Southern District of New York, No. 14-04394.
Reporting by Jonathan Stempel in New York; Editing by Marguerita Choy