HSBC, the trustee of two securitizations at issue, successfully appealed the 2018 dismissal of its complaint alleging that DB Structured Products Inc. (DBSP), the sponsor of the two securitizations at issue, breached Mortgage Loan Purchase Agreements and Pooling and Servicing Agreements by securitizing loans in breach of representations and warranties and subsequently failing to disclose its discovery of those breaches. The trial court granted a motion to dismiss without leave to amend because it interpreted the contract language as providing that DBSP had no obligation to inform HSBC when it discovered loan-level breaches due to language in the governing agreements that DBSP notify itself of breaches. A split panel of the New York Appellate Division, First Department, reversed the trial court decision, finding that the contract was ambiguous because of the nonsensical nature of the notice provision, which required DBSP to provide notice to itself and granted HSBC leave to amend its complaint.
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