Williams v. Continental Stock Transfer Trust Co.

Full title: Donna Lee H. WILLIAMS, Insurance Commissioner of the State of Delaware, As…

Court: United States District Court, N.D. Illinois, Eastern Division

Date published: Mar 19, 1998

Facts

National Housing Exchange (“NHE”) was the issuer of 21 series of 1993 8.5% Registered Collateralized Mortgage Debentures (the “Bond”). The bond had a total face value of $126,000,000, secured by a pool of mortgages. NHE sold the bond to National Heritage Life Insurance Company (“National Heritage”) on December 28, 1993. On that same date, NHE entered into an Indenture and Servicing Agreement (the “Indenture”) with Continental, which was the trustee on the bond, and with APX Mortgage Services (“APX”), which was the servicer of the mortgages securing the bond. Subsequently, the Court of Chancery of the State of Delaware placed National Heritage in rehabilitation and then ultimately, in liquidation. The court appointed the commissioner as the receiver for national heritage.

Many of the mortgages securing the Bond were unperforming or deficient in some other manner leaving the face value of the Bond inflated by more than three million dollars. As a consequence, National Heritage suffered losses on its investment in the bond. The Commissioner, acting on behalf of National Heritage, claims that some of the losses were due to the actions or inaction of Continental before closing on the bond. Specifically, the Commissioner argues that Continental breached the terms of the indenture and its fiduciary duties by not obtaining good, valid, and indefeasible title to the mortgage loans, by failing to execute a servicing fee agreement with APX, and by improperly reimbursing itself from the trust proceeds for a portion of its legal fees related to litigation involving the Bbond

Issue

Decision

For the reasons set forth above, Continental’s motion to dismiss certain claims in the complaint is granted. The Commissioner’s motion to strike Continental’s affirmative defenses is granted in part and denied in part. Continental’s Third, part of its Fourth, and its Other Affirmative Defenses are stricken without prejudice. The Commissioner’s motion to dismiss Counts I and II of Continental’s counterclaim is granted in part; her motion to dismiss Count III is granted.

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