FILED: NEW YORK COUNTY CLERK 07/11/2017 10:33 PM
`FILED: NEW YORK COUNTY CLERK 072017 10:33 P
`NYSC 3F DOC. NO.
`2
`NYSCEF DOC. NO. 2
`
`654743/2017
`INDEX NO. 654743/2017
`INDEX N0.
`
`
`
`
`
`RnCnIVnD VYSCEF:
`07/11/2017
`RECEIVED NYSCEF: 07/11/2017
`
`
`
`SUPREME COURT OF THE STATE OF NEW YORK
`COUNTY OF NEW YORK
`
`Index No.
`
`COMPLAINT FOR
`DECLARATORY JUDGMENT
`
`PIMCO ABSOLUTE RETURN STRATEGY 3D
`
`OFFSHORE FUND LTD., PIMCO
`CORPORATE & INCOME STRATEGY FUND,
`PIMCO ETF TRUST: PIMCO ACTIVE BOND
`
`EXCHANGE—TRADED FUND, PIMCO
`FUNDS: PIMCO COMMODITY REAL
`
`RETURN STRATEGY FUND®, PIMCO
`FUNDS: PIMCO DIVERSIFIED INCOME
`
`FUND, PIMCO FUNDS: PIMCO FOREIGN
`BOND FUND (U.S. DOLLAR-HEDGED),
`PIMCO FUNDS: PIMCO FOREIGN BOND
`
`FUND (UNHEDGED), PIMCO FUNDS:
`PIMCO INCOME FUND, PIMCO FUNDS:
`PIMCO LONG DURATION TOTAL RETURN
`
`FUND, PIMCO FUNDS: PIMCO MODERATE
`DURATION FUND, PIMCO FUNDS: PIMCO
`RAE LOW VOLATILITY PLUS EMG FUND,
`PIMCO FUNDS: PIMCO SHORT—TERM
`
`FUND, PIMCO FUNDS: PIMCO TOTAL
`RETURN FUND, PIMCO FUNDS: PRIVATE
`ACCOUNT PORTFOLIO SERIES SHORT-
`
`TERM PORTFOLIO, PIMCO INCOME
`OPPORTUNITY FUND, AND PIMCO
`VARIABLE INSURANCE TRUST: PIMCO
`
`REAL RETURN PORTFOLIO,
`
`Plaintiffs,
`
`V.
`
`WELLS FARGO BANK, NATIONAL
`ASSOCIATION,
`
`Defendant.
`
`
`Plaintiffs PIMCO Absolute Return Strategy 3D Offshore Fund Ltd, PIMCO Corporate &
`
`Income Strategy Fund, PIMCO ETF Trust: PIMCO Active Bond Exchange—Traded Fund, PIMCO
`
`Funds: PIMCO Commodity Real Return Strategy Fund®, PIMCO Funds: PIMCO Diversified
`
`Income Fund, PIMCO Funds: PIMCO Foreign Bond Fund (U.S. Dollar-fledged), PIMCO Funds:
`
`PIMCO Foreign Bond Fund (Unhedged), PIMCO Funds: PIMCO Income Fund, PIMCO Funds:
`
`PIMCO Long Duration Total Return Fund, PIMCO Funds: PIMCO Moderate Duration Fund,
`
`PIMCO Funds: PIMCO RAE Low Volatility Plus EMG Fund, PIMCO Funds: PIMCO Short—Term
`
`-1-
`
`l of 16
`1 of 16
`
`

`

`FILED: NEW YORK COUNTY CLERK 07/11/2017 10:33 PM
`FILED: NEW YORK COUNTY CLERK 072017 10:33 P
`
`NYSCEF DOC. NO.
`2
`NYSCEF DOC. NO. 2
`
`654743/2017
`INDEX NO. 654743/2017
`
`INDEX NO'
`
`
`
`
`
`
`RmCmIVmD vyscsrz
`07/11/2017
`RECEIVED NYSCEF: 07/11/2017
`
`Fund, PIMCO Funds: PIMCO Total Return Fund, PIMCO Funds: Private Account Portfolio Series
`
`Short-Term Portfolio, PIMCO Income Opportunity Fund, and PIMCO Variable Insurance Trust:
`
`PIMCO Real Retum Portfolio (collectively, “‘Plaiiitiffs”), by and through their undersigned
`
`attorneys, allege against Defendant Wells Fargo Bank, National Association (“Defendant” or
`
`“Wells Fargo”) as follows:
`
`I.
`
`NATURE OF ACTION
`
`1.
`
`This Complaint for declaratory relief arises from Wells Fargo’s unauthorized and
`
`unlawful looting of trust funds to pay its attorneys’ fees and defense costs, and to indemnify itself
`
`against its own negligent and willful misconduct in connection with 11 residential mortgage-
`
`backed securities (“RMBS”) trusts issued by Bank of America under the BOAA and BOAMS
`
`shelves (collectively, the “Trusts”).1
`
`2.
`
`3.
`
`Wells Fargo currently serves as trustee for each of the Trusts.
`
`Plaintiffs are the beneficial owners of certificates issued from each of the Trusts
`
`(“Certificateholders”).
`
`4.
`
`Each of the Trusts is governed by a Pooling and Servicing Agreement (“PSA”), a
`
`contract
`
`typically between the depositor,
`
`the master servicer and the trustee. The PSA
`
`memorializes, among other things: (i) the transfer and conveyance of the mortgage loans from the
`
`depositor to the trust; (ii) the issuance of and terms associated with the certificates and payments
`
`1 The Trusts are as follows: (1) Banc of America Alternative Loan Trust 2004-1; (2) Banc of
`America Alternative Loan Trust 2004—2; (3) Banc of America Alternative Loan Trust 2004—3;
`(4) Banc of America Alternative Loan Trust 2004—7; (5) Banc of America Alternative Loan Trust
`2004—8;
`(6) Banc of America Mortgage Securities 2004—1;
`(7') Banc of America Mortgage
`Securities 2004-7; (8) Banc of America Mortgage Securities 2005-1; (9) Banc of America
`Mortgage Securities 2005—10; (10) Banc of America Mortgage Securities 2005—6; and (1 l) Banc
`of America Mortgage Securities 2005—9.
`
`-2-
`
`2 of 16
`2 of 16
`
`

`

`FILED: NEW YORK COUNTY CLERK 07/11/2017 10:33 PM
`FILED: NEW YORK COUNTY CLERK 072017 10:33 P
`
`NYSCEF DOC. NO.
`2
`NYSCEF DOC. NO. 2
`
`INDEX NO. 654743/2017
`INDEX NO~ 654743/2017
`
`
`
`
`
`RmeIVmD WYSCEF: 07/11/2017
`RECEIVED NYSCEF: 07/11/2017
`
`
`
`owed to Certificateholders; and (iii) the trustee’s rights, duties and obligations. Certificateholders
`
`are third-party beneficiaries of the PSA.
`
`5.
`
`Plaintiffs and other institutional investors have initiated a class action against Wells
`
`Fargo, entitled BlockRock Core Bond Portfolio, at (11.,
`
`1». Wells Fargo Bank, National Association,
`
`Index No. 656587/2016 (NY. Sup. Ct.) (Ramos, J.), asserting claims for breach of contract, breach
`
`of the covenant of good faith and fair dealing, and breach of the duty to avoid conflicts of interest
`
`in connection with Wells Fargo’s administration of over 261 RMBS trusts, including all 11 Trusts
`
`at issue here (the “Wells Fargo Trustee Litigation”).
`
`In the Wells Fargo Trustee Litigation, the
`
`plaintiffs allege that Wells Fargo’s negligent and willful misconduct has caused investors in the
`
`trusts to suffer significant losses. Specifically, Wells Fargo negligently and willfully failed to
`
`address mortgage loan document deficiencies, breaches of representations and warranties made by
`
`the originators and sponsors (collectively, “Sellers”), and improper servicing of the mortgage
`
`loans.
`
`6.
`
`On information and belief, Wells Fargo is using Trust funds for the improper
`
`purpose of paying both incurred and future anticipated legal fees in the Wells Fargo Trustee
`
`Litigation. The Trusts’ PSAs do not allow for such indemnification, advancement, or paying of
`
`legal fees. Wells Fargo has taken over $57.2 million from the Trusts and their Certificateholders
`
`to establish a reserve for its own anticipated legal expenses to defend its own misconduct at issue
`
`in the Wells Fargo Trustee Litigation.
`
`7.
`
`On or about April 21, 2017, New Residential Investment Corp, as owner of certain
`
`call rights for the Trusts, exercised its clean-up call rights with respect to the Trusts, which at the
`
`3ofl6
`3 of 16
`
`

`

`FILED: NEW YORK COUNTY CLERK 07/11/2017 10:33 PM
`FILED: NEW YORK COUNTY CLERK 072017 10:33 P
`
`NYSCEF DOC. NO.
`2
`NYSCEF DOC. NO. 2
`
`INDEX NO. 654743/2017
`INDEX NO~ 654743/2017
`
`
`
`
`
`RmCmIVmD vYSCEF: 07/11/2017
`RECEIVED NYSCEF: 07/11/2017
`
`
`
`time had an unpaid principal balance (“UPB”) of $309.5 million.2 DeSpite being called at par, as
`
`required under the PSAs, the Trusts and Certificateholders realized losses of over $54.8 million
`
`because Wells Fargo wrongfully withheld approximately $57.2 million from investors to establish
`
`so—called “Trustee Reserve Accounts” to cover Wells Fargo’s “present and future expenses” in
`
`connection with claims or litigation involving Wells Fargo’s negligent and/or willful misconduct.3
`
`8.
`
`Neither the PSAS nor the law permit Wells Fargo’s taxing of the investors it was
`
`supposed to protect to indemnify itself and to finance its actual and expected defense costs
`
`associated with the claims in the Wells Fargo Trustee Litigation. The PSAs specifically prohibit
`
`Wells Fargo from seeking indemnity from the Trusts forpersonal claims asserted against it relating
`
`to Wells Fargo’s “willful misfeasance, bad faith or gross negligence,” which claims are precisely
`
`at issue in the Wells Fargo Trustee Litigation. While the PSAs afford Wells Fargo a limited right
`
`to indemnification for costs associated with pursuing claims on behalf of the Trusts and
`
`Certificateholders, none of the PSAs at issue provide for the advancement of defense costs during
`
`the pendency of an ongoing action brought by Certificateholders against Wells Fargo or the
`
`establishment of a reserve to cover anticipated legal expenses.
`
`9.
`
`With this suit, Plaintiffs seek a declaration, pursuant to New York Civil Practice
`
`Law and Rule (“CPLR”) § 3001, adjudicating Plaintiffs’ and Wells Fargo’s rights under the PSAs.
`
`2 See, e.g., Wells Fargo, Notice Banc of America Mortgage Securities, Inc, Mortgage Pass—
`Through Certificates, Series 2004-7, available at: https:l/app.box.com/v/wellsnotice. According
`to the Notice, “[t]he time period for which funds will need to be held in the Trustee Reserve
`Account by the Trustee is currently unknown.”
`
`3 In addition to establishing litigation reserves for the 11 Trusts at issue here, Wells Fargo
`wrongfully set aside $36.8 million from 9 other Bank of America securitizations that are the
`subject of the Wells Fargo Trustee Litigation, causing an additional $35.2 million in realized losses
`to investors.
`In sum, in connection with the Clean—Up Call, Wells Fargo established litigation
`reserves across 20 trusts totaling $94 million and collectively resulting in losses to investors of
`over $90 million.
`
`-4-
`
`4ofl6
`4 of 16
`
`

`

`FILED: NEW YORK COUNTY CLERK 07/11/2017 10:33 PM
`FILED: NEW YORK COUNTY CLERK 072017 10:33 P
`
`NYSCEF DOC. NO.
`2
`NYSCEF DOC. NO. 2
`
`654743/2017
`INDEX NO. 654743/2017
`
`INDEX NO'
`
`
`
`
`
`
`RmCmIVmD vYSCEF:
`07/11/2017
`RECEIVED NYSCEF: 07/11/2017
`
`There is a genuine legal dispute and j usticiable controversy regarding Wells Fargo’s entitlement to
`
`indemnity and defense costs under the PSAs. Plaintiffs seek an Order and Judgment declaring
`
`that:
`
`a. 7
`
`Wells Fargo is not entitled to indemnity from the Trusts against any loss, liability
`
`or expense associated with the Wells Fargo Trustee Litigation;
`
`b.
`
`Wells Fargo is not entitled to draw against the Trusts for purposes of advancing its
`
`attorneys” fees and expenses associated with the Wells Fargo Trustee Litigation; and
`
`0.
`
`Wells Fargo is not entitled to withhold or reserve Trust funds for future legal
`
`expenses associated with the Wells Fargo Trustee Litigation and is not entitled to exercise call
`
`rights without paying 100% of the stated principal balance of each mortgage loan.
`
`10.
`
`The requested declaratory judgment will serve a useful purpose in clarifying and
`
`settling the legal issues regarding the propriety of Wells Fargo seeking indemnification from the
`
`Trusts in connection with the claims in the Wells Fargo Trustee Litigation, drawing against the
`
`Trusts for purposes of advancing its attorneys’ fees and expenses associated with the Wells Fargo
`
`Trustee Litigation, and establishing a reserve for future legal expenses in the Wells Fargo Trustee
`
`Litigation.
`
`II.
`
`THE PARTIES
`
`11.
`
`Each of the Plaintiffs identified in Exhibit 1 attached hereto is a Certificateholder
`
`in the Trusts.
`
`12.
`
`Wells Fargo is a national banking association organized and existing under the laws
`
`of the United States with its main office in Sioux Falls, South Dakota. Wells Fargo acts as trustee
`
`for each of the Trusts, which are New York common law trusts governed by New York law.
`
`5 of 16
`5 of 16
`
`

`

`FILED: NEW YORK COUNTY CLERK 07/11/2017 10:33 PM
`FILED: NEW YORK COUNTY CLERK 072017 10:33 P
`
`NYSCEF DOC. NO.
`2
`NYSCEF DOC. NO. 2
`
`INDEX NO. 654743/2017
`INDEX NO~ 654743/2017
`
`
`
`
`
`RmeIVmD vYSCEF: 07/11/2017
`RECEIVED NYSCEF: 07/11/2017
`
`III.
`
`JURISDICTION AND VENUE
`
`13.
`
`This Court has jurisdiction over this proceeding pursuant to CPLR § 301 because
`
`Wells Fargo maintains offices and regularly conducts business in New York. This Court also has
`
`jurisdiction pursuant to CPLR § 302 because Wells Fargo, by engaging in the conduct alleged
`
`herein, transacted business within New York. Further, all of the contracts and all of the Trusts at
`
`issue were formed under New York law and/or contain a New York choice-of—law provision.
`
`14.
`
`Venue is proper in this Court under CPLR § 503(a) because one or more of the
`
`parties reside in New York County and Plaintiffs designate New York County as the place of trial
`
`for this action. Venue is proper in this Court under CPLR § 503(b) because Wells Fargo, a trustee,
`
`is deemed a resident of New York County by virtue of its appointment as trustee of the Trusts, all
`
`Of which were formed under New York law.
`
`IV.
`
`BACKGROUND FACTS
`
`A.
`
`Wells Fargo’s Limited Right To Indemnification
`
`15.
`
`Wells Far-go’s rights and contractual duties, as trustee for the Trusts at issue in this
`
`action, are set forth in the PSAs. Copies of the PSAs are attached as Exhibits 2 to 12.
`
`16.
`
`17.
`
`Both the PSAs and the certificates themselves are governed by New York Law.
`
`Each of the PSAS contain a substantially similar provision addressing the fees and
`
`expenses Wells Fargo, as trustee, is entitled to from the Trusts. Such provision is typically found
`
`in Section 9.11 of the PSA and provides as follows:
`
`Section 9.11 Trustee’s Fees and Expenses. The Trustee, as
`compensation for its activities hereunder, shall be entitled to receive
`on each Distribution Date an amount equal to the Trustee Fee for
`such Distribution Date pursuant to Section 5.02(a). The Trustee and
`any director, officer, employee or agent of the Trustee shall be
`indemnified by the Trust and held harmless against any loss, liability
`or expense (including reasonable attomey’s fees) (a) incurred in
`connection with any claim or
`legal action relating to (i)
`this
`Agreement, (ii) the Certificates, or (iii) the performance of any of
`
`-6-
`
`6ofl6
`6 of 16
`
`

`

`FILED: NEW YORK COUNTY CLERK 07/11/2017 10:33 PM
`FILED: NEW YORK COUNTY CLERK 072017 10:33 P
`NYSCI
`3F DOC. NO.
`2
`NYSCEF DOC. NO. 2
`
`INDEX NO .
`654743/2017
`INDEX NO. 654743/2017
`
`
`
`
`
`RmCfiIVmD \IYSCEF:
`07/11/2017
`RECEIVED NYSCEF: 07/11/2017
`
`
`
`liability or
`the Trustee’s duties hereunder, other than any loss,
`expense incurred by reason of willful misfeasance, bad faith or
`gross negligence in thepeijformance of any of the Trustee ’S duties
`hereunder, (b) resulting from any tax or information return which
`was prepared by, or should have been prepared by, the Servicer and
`(c) arising out of the transfer of any ERISA Restricted Certificate or
`Residual Certificate not in compliance with ERISA. Such indemnity
`shall survive the termination of this Agreement or the resignation or
`removal of the Trustee hereunder.4
`
`18.
`
`The contracts specifically exclude legal expenses incurred by reason of Wells
`
`Fargo’s “willfltl misfeasance, badfaith or negligence.” Long established New York law similarly
`
`prohibits a trustee from using trust assets to pay personal legal fees.
`
`19.
`
`Neither Section 9.11 nor any other provision in the PSAs expressly permits Wells
`
`Fargo to advance itself legal defense costs during the pendency of an action.
`
`20.
`
`Each of the PSAs contain a substantially similar provision affording the Depositor
`
`the right to purchase all mortgage loans within the Trusts. Such provisions are typically found in
`
`Sections 1001 and 10.02 of the PSA and generally provide that if such right is exercised by the
`
`Depositor, payment of 100% of the stated principal balance of the Trusts’ mortgage loans must be
`
`distributed to Certificateholders in accordance with the Trusts’ cash flow waterfall.
`
`21.
`
`None of the PSAS permit Wells Fargo to withhold or reserve Trust funds for future
`
`legal expenses.
`
`B.
`
`The Wells Fargo Trustee Litigation
`
`22.
`
`On December 17, 2016, Plaintiffs and other investors filed a putative class action
`
`against Wells Fargo for its failure to discharge its duties as trustee for 261 private-label RMBS
`
`Trusts created between 2004 and 2007'. See BloclcRock Core Bond Portfolio, of (21., v. Wells Fargo
`
`4 See Exhibit 13 (emphasis added).
`
`7 of 16
`7 of 16
`
`

`

`FILED: NEW YORK COUNTY CLERK 07/11/2017 10:33 PM
`FILED: NEW YORK COUNTY CLERK 072017 10:33 P
`
`NYSCEF DOC. NO.
`2
`NYSCEF DOC. NO. 2
`
`654743/2017
`INDEX NO. 654743/2017
`
`INDEX NO'
`
`
`
`
`
`
`RmCmIVmD urscsr:
`07/11/2017
`RECEIVED NYSCEF: 07/11/2017
`
`Bank, National Association, Index No. 65658772016, Dkt No. 1 (NY. Sup. Ct.) (Ramos, J.). The
`
`Wells Fargo Trustee Litigation covers all 11 of the Trusts at issue here.
`
`23.
`
`The Wells Fargo Trustee Litigation alleges that Wells Fargo failed to carry out its
`
`duties as trustee, including failing to: (i) properly review 01' inventory mortgage files and make
`
`certifications to ensure that title to the underlying mortgage loans was transferred to the Trusts; (ii)
`
`notify responsible loan sellers and/or warrantors to cure, replace or repurchase defective loans
`
`upon its discovery of breaches of representations and warranties with respect to 1n01tgage loans or
`
`mortgage loan files within the Trusts; (iii) take steps to cause the Sellers to repurchase defective
`
`loans; (iv) provide notices to cure known servicing violations that could materialize into an Event
`
`of Default; (v) act prudently and exercise all rights and remedies available to Wells Fargo under
`
`the PSAs upon the occurrence of an Event of Default; and (vi) notify the Certificateholders of all
`
`uncured Events of Default.
`
`24.
`
`The Wells Fargo Trustee Litigation further alleges that Wells Fargo breached its
`
`common law duty to avoid conflicts of interest with Certificateholders, which has impaired its
`
`ability to act independently to protect the Trusts and Certificateholders since Wells Fargo was
`
`engaged in the same wrongful conduct alleged of the Master Servicer and other parties to the
`
`transactions. The Wells Fargo Trustee Litigation also asserts claims against Wells Fargo for
`
`breaches of its express and implied contractual duties under the PSAs, and its teltious misconduct.
`
`C.
`
`Wells Fargo’s Use Of Trust Funds T0 Finance
`Its Defense Of The Wells Fargo Trustee Litigation
`
`25.
`
`On information and belief, Wells Fargo is improperly using funds from the Trusts
`
`to pay the legal fees it incurs in the Wells Fargo Trustee Litigation on the basis it is entitled to such
`
`indemnification under the PSAs.
`
`8of16
`8 of 16
`
`

`

`FILED: NEW YORK COUNTY CLERK 07/11/2017 10:33 PM
`FILED: NEW YORK COUNTY CLERK 072017 10:33 P
`
`NYSCEF DOC. NO.
`2
`NYSCEF DOC. NO. 2
`
`654743/2017
`INDEX NO. 654743/2017
`
`INDEX NO'
`
`
`
`
`
`
`RmCmIVmD vyscsrz
`07/11/2017
`RECEIVED NYSCEF: 07/11/2017
`
`26.
`
`Plaintiffs are further informed and believe that Wells Fargo has set aside Trust funds
`
`for the purpose of establishing a reserve for its own anticipated legal expenses arising from the
`
`Wells Fargo Trustee Litigation.
`
`27.
`
`On April 21, 2017, New Residential
`
`Investment Corp, as owner of certain
`
`call rights for the Trusts, provided notice to Wells Fargo, as trustee, that it intended to exercise
`
`its clean—up call option regarding the Trusts pursuant to Sections 10.01 and 10.02 of the PSA
`
`(the “Clean-Up Call”).
`
`28.
`
`In connection with the Clean-Up Call, (a) the depositor is to purchase all mortgage
`
`loans and all property acquired in reSpect of any mortgage loan remaining in the Trusts, and
`
`(b) the final distributions will be made to Certificateholders on the final distribution date, each in
`
`accordance with Sections 10.01 and 10.02 of the PSAs.
`
`29.
`
`The distribution of funds to Certificateholders is governed by the Trusts”
`
`distribution waterfall provisions, which are generally found in Sections 4.01 and 4.02 of the PSAs.
`
`Under the distribution waterfall provisions, all funds received in connection with the Clean—Up
`
`Call are to be distributed to Certificateholders as of the next distribution date; i.e., the final
`
`distribution date.
`
`30.
`
`There are no provisions in the PSAs that permit funds collected on account of
`
`principal and interest payments to be handled outside of the requirements of the PSAs. Thus,
`
`according to the PSAs, WellsFargo is required to remit to Certificateholders in accordance with
`
`the distribution waterfall provisions all funds received in connection with the Clean—Up Call.
`
`31.
`
`Specifically, Sections 10.01 and 10.02 mandate payment of 100% of the clean—up
`
`proceeds be distributed to Certificateholders. Wells Fargo, however, improperly established
`
`reserve accounts (the “Trustee Reserve Account”) for each of the Trusts in connection with the
`
`9of16
`9 of 16
`
`

`

`FILED: NEW YORK COUNTY CLERK 07/11/2017 10:33 PM
`FILED: NEW YORK COUNTY CLERK 072017 10:33 P
`
`NYSCEF DOC. NO.
`2
`NYSCEF DOC. NO. 2
`
`654743/2017
`INDEX NO. 654743/2017
`
`INDEX NO'
`
`
`
`
`
`
`RmCmIVmD vYSCEF:
`07/11/2017
`RECEIVED NYSCEF: 07/11/2017
`
`Clean-Up Call in the amount of $57.2 million. Wells Fargo’s reserve accounts, which caused
`
`investors to incur $54.8 million in realized losses, violate these sections of the PSAs.
`
`Figure 1: Losses Incurred At The Time Of The Clean-Up Call
`
`Trust
`
`Current Amount
`
`Realized Loss
`
`Percentage of Loss
`
`BOAA 2004-1
`
`BOAA 2004—2
`
`BOAA 2004-3
`
`BOAA 2004—7
`
`BOAA 2004—8
`
`BOAMS 2004-1
`
`BOAMS 2004-7
`
`BOAMS 2005—1
`
`BOAMS 2005-10
`
`BOAMS 2005—6
`
`BOAMS 2005—9
`
`$28.1mn
`
`$27.8mn
`
`$22.1mn
`
`$40.5mn
`
`$24.0mn
`
`$18.2mn
`
`$37.6mn
`
`$18.5mn
`
`$43.7mn
`
`$22.6mn
`
`$26.4mn
`
`$8.4mn
`
`$6.6mn
`
`$5.41nn
`
`$8.0mn
`
`$6.0mn
`
`$5.0mn
`
`$5.2mn
`
`$1.9mn
`
`$3.4mn
`
`$2.2mn
`
`$2.7mn
`
`30%
`
`24%
`
`25%
`
`20%
`
`25%
`
`28%
`
`14%
`
`11%
`
`8%
`
`10%
`
`10%
`
`Total:
`
`$309.5mn
`
`$54.8mn
`
`17.7%
`
`*Based on currently available data
`Source:
`lntex, Loan Performance, Nomura
`
`32.
`
`Wells Fargo Withheld funds from Certificateholders to meet Wells Fargo’s current
`
`and future expenses, including attorneys’ fees and expenses, incurred in connection with litigation
`
`against Wells Fargo based on its wrongful conduct.
`
`33.
`
`Wells Fargo has stated that it intends to withdraw and use funds from the Trustee
`
`Reserve Account subject to the same restrictions and limitations as set forth in the PSAs. Wells
`
`Fargo has stated that the time period for which funds will need to be held in the Trustee Reserve
`
`Account
`
`is currently unknown. Wells Fargo provided no accounting or justification to
`
`Certificateholders for the size of the litigation reserves.
`
`34.
`
`Wells Fargo has stated that when it determines such funds are no longer necessary
`
`to meet current or firture expenses, funds remaining in the Trustee Reserve Account, if any, will be
`
`distributed to the Certificateholders who held Certificates as of the final distribution date.
`
`-10-
`
`10 of 16
`10 of 16
`
`

`

`FILED: NEW YORK COUNTY CLERK 07/11/2017 10:33 PM
`FILED: NEW YORK COUNTY CLERK 07 m 2017 10 :33 P
`
`NYSCEF DOC. NO.
`2
`NYSCEF DOC. NO. 2
`
`654743/2017
`INDEX NO. 654743/2017
`INDEX NO'
`
`
`
`
`
`RmCmIVmD vyscsrz
`07/11/2017
`RECEIVED NYSCEF: 07/11/2017
`
`
`
`3 5.
`
`Plaintiffs are informed and believe that the reserve is meant to cover costs incurred
`
`in the Wells Fargo Trustee Litigation.
`
`36.
`
`Both the PSAs and common law prohibit indemnification of Wells Fargo from the
`
`Trusts for legal expenses incurred as a result of Wells Fargo’s misconduct alleged in the Wells
`
`Fargo Tmstee Litigation. The Wells Fargo Trustee Litigation focuses on Wells Fargo’s personal
`
`misfeasance and failure to protect the Trusts and Certificateholders. Wells Fargo must pay its own
`
`legal costs.
`
`37.
`
`Moreover, as also set forth above, the PSAs do not expressly permit Wells Fargo to
`
`advance itself legal defense costs for litigation such as the Wells Fargo Trustee Litigation or to
`
`withhold Trust funds for legal expenses as a reserve or otherwise.
`
`38.
`
`Wells Fargo’s causing the Trusts to pay, advance and reserve funds for the trustee’s
`
`legal expenses violates the express terms of the PSAs and New York law.
`
`3 9.
`
`The PSAs do not authorize the advancement, indemnification or reservation of legal
`
`expenses in connection with an action between or among parties to the PSAs.
`
`The
`
`Certificateholders, as the beneficial owners of the Trusts, are express third-party beneficiaries to
`
`the PSAS.
`
`40.
`
`New York law governs the PSAs. See generally PSA § 11.04. Under New York
`
`law, the well-settled rule is that parties are reSponsible for their own legal fees and expenses.
`
`Where, as in the underlying Wells Fargo Trustee Litigation, the dispute is between or among parties
`
`to an agreement, indemnification for legal fees and expenses is not permitted unless expressly
`
`stated in the contract.
`
`41.
`
`The PSAs do not authorize indemnification for legal expense in internecine disputes
`
`between or among parties to the PSAs.
`
`.11.
`
`11 of 16
`11 of 16
`
`

`

`FILED: NEW YORK COUNTY CLERK 07/11/2017 10:33 PM
`FILED: NEW YORK COUNTY CLERK 072017 10:33 P
`
`NYSCEF DOC. NO.
`2
`NYSCEF DOC. NO. 2
`
`654743/2017
`INDEX NO. 654743/2017
`
`INDEX NO'
`
`
`
`
`
`
`RmCmIVmD VYSCEF:
`07/11/2017
`RECEIVED NYSCEF: 07/11/2017
`
`V.
`
`PLAINTIFFS MAY PROPERLY SUE THE TRUSTEE
`
`42.
`
`Under New York law, “no action” clauses do not apply to actions by RMBS
`
`Certificateholders against a trustee for the trustee’s own misconduct. In such actions, it would be
`
`absurd to require Plaintiffs to demand that Wells Fargo sue itself in its own name to pursue a
`
`recovery from Wells Fargo for the benefit of Certificateholders. Because this is not an “action,
`
`suit or proceeding” that Wells Fargo is capable of bringing in its own name as trustee under the
`
`PSAS,
`
`the “no action” clause of the PSAs does not apply and does not bar Plaintiffs from
`
`proceeding with this lawsuit for declaratory relief.
`
`VI.
`
`CAUSES OF ACTION
`
`FIRST CAUSE OF ACTION
`
`(Declaratory Judgment Regarding Wells Fargo’s
`Right To Indemnification From The Trusts)
`
`43.
`
`Plaintiffs repeat and reallege each and every allegation set forth in the preceding
`
`paragraphs as if fully set forth herein.
`
`44.
`
`A valid and justiciable controversy exists between Plaintiffs and Wells Fargo
`
`regarding Wells Fargo’s right to indemnification from the Trusts against any loss, liability or
`
`expense associated with the Wells Fargo Trustee Litigation. Plaintiffs contend, and Wells Fargo
`
`denies, that Wells Fargo is not entitled to indemnification from the Trusts for any loss, liability or
`
`expense associated with the Wells Fargo Trustee Litigation because the claims therein arise from
`
`Wells Fargo’s alleged “willful rnisfeasance, bad faith or negligence” and are therefore specifically
`
`excluded from the legal expenses for which Wells Fargo is entitled to indemnification under both
`
`the PSAS and New York law.
`
`45.
`
`Plaintiffs seek a declaration that Wells Fargo is not permitted indemnification from
`
`the Trusts for any loss, liability or expense associated with the Wells Fargo Trustee Litigation.
`
`-12-
`
`12 of 16
`12 of 16
`
`

`

`FILED: NEW YORK COUNTY CLERK 07/11/2017 10:33 PM
`FILED: NEW YORK COUNTY CLERK 07 m 2017 10 :33 P
`
`NYSCEF DOC. NO.
`2
`NYSCEF DOC. NO. 2
`
`654743/2017
`INDEX NO. 654743/2017
`
`INDEX NO'
`
`
`
`
`Rmcmrvmn urscsr:
`07/11/2017
`RECEIVED NYSCEF: 07/11/2017
`
`46.
`
`The requested declaratory judgment will serve a useful purpose in clarifying and
`
`settling the legal issue regarding whether Wells Fargo is entitled to indemnity from the Trusts
`
`against any loss,
`
`liability or expense associated with our actions in the Wells Fargo Trustee
`
`Litigation. The requested judgment will therefore obviate the need for the hundreds — if not
`
`thousands — of other Certificateholders to bring similar suits challenging this conduct.
`
`SECOND CAUSE OF ACTION
`
`(Declaratory Judgment Regarding Wells Fargo’s
`Advancement Of Legal Fees From The Trusts)
`
`47.
`
`Plaintiffs repeat and reallege each and every allegation set forth in the preceding
`
`paragraphs as if fully set forth herein.
`
`48.
`
`A valid and justiciable controversy exists between Plaintiffs and Wells Fargo
`
`regarding Wells Fargo’s right to draw against the Trusts for purposes of advancing its attorneys’
`
`fees and expenses associated with the Wells Fargo Trustee Litigation while that action is ongoing.
`
`Plaintiffs contend and Wells Fargo denies, that Wells Fargo is not entitled to advancement of legal
`
`fees during the pendency of a legal action asserting such claims against Wells Fargo under the
`
`PSAS and New York law.
`
`49.
`
`Plaintiffs seek a declaration that Wells Fargo is not entitled to draw against the
`
`Trusts for purposes of advancing its attorneys’ fees and expenses associated with the Wells Fargo
`
`Trustee Litigation.
`
`50.
`
`The requested declaratory judgment will serve a useful purpose in clarifying and
`
`settling the legal issue regarding whether Wells Fargo is entitled to draw against the Trusts for
`
`purposes of advancing its attorneys’ fees and expenses associated with the Wells Fargo Trustee
`
`Litigation. The requested judgment will therefore obviate the need for the hundreds a if not
`
`thousands — of other Certificateholders to bring similar suits challenging this conduct.
`
`-13-
`
`13 of 16
`13 of 16
`
`

`

`FILED: NEW YORK COUNTY CLERK 07/11/2017 10:33 PM
`FILED: NEW YORK COUNTY CLERK 07 m 2017 10 :33 P
`
`NYSCEF DOC. NO.
`2
`NYSCEF DOC. NO. 2
`
`654743/2017
`INDEX NO. 654743/2017
`INDEX NO'
`
`
`
`
`
`Rmcmtvmc vYSCEF:
`07/11/2017
`RECEIVED NYSCEF: 07/11/2017
`
`
`
`THIRD CAUSE OF ACTION
`
`(Declaratory Judgment Regarding Wells Fargo’s
`Reservation Of Trust Funds For Future Legal Expenses)
`
`51.
`
`Plaintiffs repeat and reallege each and every allegation set forth in the preceding
`
`paragraphs as if fully set forth herein.
`
`52.
`
`A valid and justiciable controversy exists between Plaintiffs and Wells Fargo
`
`regarding Wells Fargo’s right to withhold or reserve Trust funds for future legal expenses
`
`associated with the Wells Fargo Trustee Litigation. Plaintiffs contend and Wells Fargo denies, that
`
`Wells Fargo is not entitled to withhold or reserve Trust funds for future legal expenses associated
`
`with the Wells Fargo Trustee Litigation under the PSAs. Plaintiffs further contend and Wells Fargo
`
`denies that call rights cannot be exercised under the PSAs absent payment of 100% of the unpaid
`
`principal balance to the Certificateholders.
`
`53.
`
`Plaintiffs seek a declaration that Wells Fargo is not entitled to withhold or reserve
`
`Trust funds for future legal expenses associated with the Wells Fargo Trustee Litigation, and that
`
`call rights cannot be exercised under the PSAs absent payment of 100% of the unpaid principal
`
`balance to the Certificateholders.
`
`54.
`
`The requested declaratory judgment will serve a useful purpose in clarifying and
`
`settling the legal issue regarding whether Wells Fargo is entitled to withhold or reserve Trust funds
`
`for future legal expenses associated with the Wells Fargo Trustee Litigation. The requested
`
`judgment will
`
`therefore obviate the need for the hundreds i if not
`
`thousands — of other
`
`Certificateholders to bring similar suits challenging this conduct.
`
`-14-
`
`14 of 16
`14 of 16
`
`

`

`FILED: NEW YORK COUNTY CLERK 07/11/2017 10:33 PM
`FILED: NEW YORK COUNTY CLERK 072017 10:33 P
`
`NYSCEF DOC. NO.
`2
`NYSCEF DOC. NO. 2
`
`654743/2017
`INDEX NO. 654743/2017
`
`INDEX NO'
`
`
`
`
`
`
`RmCmIVmD vyscsrz
`07/11/2017
`RECEIVED NYSCEF: 07/11/2017
`
`VII. RELIEF REQUESTED
`
`WHEREFORE, Plaintiffs respectfully request that the Court, pursuant to CPLR § 3001,
`
`enter judgment in their favor, and:
`
`l.
`
`21.
`
`Declare:
`
`Wells Fargo is not entitled to indemnity from the Trusts against any loss, liability
`
`or expense assooiated with the Wells Fargo Trustee Litigation;
`
`b.
`
`Wells Fargo is not entitled to draw against the Tiusts for the purpose of advancing
`
`its attorneys’ fees and expenses associated with the Wells Fargo Trustee Litigation during the
`
`pendency of that action; and
`
`0.
`
`Wells Fargo is not entitled to withhold or reserve Trust funds for future legal
`
`expenses associated with the Wells Fargo Trustee Litigation, and that call rights cannot be
`
`exercised under the PSAs absent payment of 100% of the unpaid principal balance to the
`
`Certificateholders.
`
`2.
`
`Award Plaintiffs further or consequential relief necessary to make effective the
`
`rights declared, including an injunction enjoining Wells Fargo from engaging in similar conduct
`
`with respect to the Trusts and an order directing that Wells Fargo return to the Trusts, or if
`
`dissolved, to the Certificateholders, all funds wrongfully withheld to pay for legal expenses
`
`incurred in the Wells Fargo Trustee Litigation or improperly set aside in the Trustee Reserve
`
`Accounts, together with prejudgment interest at the maximum legal rate applicable to a judgment
`
`issued by the Court; and
`
`3.
`
`Award Plaintiffs any other relief the Court deems just and proper,
`
`including
`
`Plaintiffs’ attorneys’ fees, costs and expenses incurred in prosecuting this declaratory judgment
`
`action.
`
`-15-
`
`15 of 16
`15 of 16
`
`

`

`FILED: NEW YORK COUNTY CLERK 07/11/2017 10:33 PM
`FILED: NEW YORK COUNTY CLERK 072017 10:33 P
`
`NYSCEF DOC. NO.
`2
`NYSCEF DOC. NO. 2
`
`INDEX NO. 654743/2017
`INDEX NO~ 654743/2017
`
`
`
`
`
`RmCmIVmD WYSCEF: 07/11/2017
`RECEIVED NYSCEF: 07/11/2017
`
`
`
`Dated: July 11, 2017
`
`Respectfully submitted,
`
`BERNSTEIN LITOWITZ BERGER
`& GROSSMANN LLP
`
`“RE
`
`ROBERT S. TRISOTTO
`
`BLAIR A. NICHOLAS (pro hac vice forthcoming)
`TIMOTHY A. DeLANGE (pm hac vice forthcoming)
`BENJAMIN GALDSTON (pro hac vice forthcoming)
`LUCAS E. GILMORE (pro hac vice fofthcoming)
`ROBERT S. TRISOTTO (Bar No. 4784203)
`12481 High Bluff Drive, Suite 300
`San Diego, CA 92130
`Tel:
`(858) 793-0070
`
`Fax:
`
`(858) 793—0323
`
`Counselfor Plaintififs
`
`-16-
`
`16 of 16
`16 of 16
`
`