FILED: NEW YORK COUNTY CLERK 08/18/ :57 PM INDEX NO /2017 NYSCEF DOC. NO. 17 RECEIVED NYSCEF: 08/18/2017

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1 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK RMBS RECOVERY HOLDINGS I, LLC, RMBS RECOVERY HOLDINGS II, LLC, RMBS RECOVERY HOLDINGS III, LLC, and RMBS RECOVERY HOLDINGS IV, LLC, derivatively on behalf of Certain UCF Trusts, -against- Plaintiffs, Index No.: /2017 IAS Part 60 Hon. Marcy S. Friedman Mot. Seq. No. 001 ORAL ARGUMENT REQUESTED SYNCORA GUARANTEE INC., Defendant, and CERTAIN UCF TRUSTS defined herein, Nominal Defendants. PLAINTIFFS MEMORANDUM OF LAW IN OPPOSITION TO SYNCORA S MOTION TO DISMISS 1 of 43

2 TABLE OF CONTENTS Page PRELIMINARY STATEMENT...1 ALLEGATIONS IN THE COMPLAINT...5 A. The Parties And Relevant Non-Party...5 B. The Underlying RMBS Certificates And The UCF Trusts Syncora s Insurance Of Underlying RMBS Certificates Syncora s Financial Distress And Regulatory Action The Offer To Purchase Syncora s Assignment Of Reimbursement Amounts To The UCF Trusts...9 C. The Syncora/JPMorgan Settlement...10 D. Syncora Continues To Receive Other Reimbursement Amounts That Belong To The UCF Trusts...12 ARGUMENT...12 I. Motion To Dismiss Standard...12 II. Plaintiffs Have Derivative Standing...13 A. The Trustee Consented To This Action...13 B. The No Action Clause Does Not Bar Plaintiffs Derivative Claims...15 III. The Complaint Pleads Actionable Breaches Of Contract...20 A. Syncora Assigned Broad Rights To The UCF Trusts That Clearly Encompass The Syncora/JPMorgan Settlement Proceeds...21 B. The Relief Sought In The Underlying Lawsuits Has No Bearing On Syncora s Obligation To Disgorge To The UCF Trusts A Portion Of The Syncora/JPMorgan Settlement...26 C. Syncora Made Clear, Unambiguous Representations In The Offers To Purchase That Recoveries From The JPMorgan Actions Would Flow To The Underlying Trusts, Which Its Litigation Pleadings Confirmed...27 i 2 of 43

3 IV. Plaintiffs Second Cause of Action Is Timely...30 A. Syncora Misapprehends The Claim And The Applicable Limitations Period...30 B. Syncora Misapprehends The Accrual Date...31 V. Plaintiffs Implied Duty Of Good Faith And Unjust Enrichment Claims Are Actionable...33 A. Implied Duty Of Good Faith...33 B. Unjust Enrichment...34 CONCLUSION...35 ii 3 of 43

4 TABLE OF AUTHORITIES Cases Page(s) 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144 (2002)...33 Access Point Med., LLC v. Mandell, 106 A.D.3d 40 (1st Dep t 2013)...32 Akanthos Capital Mgmt., LLC v. CompuCredit Holdings Corp., 677 F.3d 1286 (11th Cir. 2012)...20 Aventine Inv. Mgmt., Inc. v. Canadian Imperial Bank of Commerce, 265 A.D.2d 513 (2nd Dep t 1999)...31 Blackrock Core Bond Portfolio v. U.S. Bank, Nat l Ass n, 165 F. Supp. 3d 80 (S.D.N.Y. 2016)...19 Campbell v. Hudson & Manhattan R.R. Co., 277 A.D. 731 (1st Dep t 1951)... passim CFIP Master Fund, Ltd. v. Citibank, N.A., 738 F. Supp. 2d 450 (S.D.N.Y. 2010)...18 Cont l Cas. Co. v. Stronghold Ins. Co., 957 F.2d 961 (2d Cir. 1992)...32 Cruden v. Bank of N.Y., 957 F.2d 961 (2d Cir. 1992)...19 Cusimano v. Schnurr, 137 A.D.3d 527 (1st Dep t 2016)...31 Emmet & Co., Inc. v. Catholic Health E., 37 Misc. 3d 854 (N.Y. Sup. Ct. 2012)...20 Ellington Credit Fund, Ltd. v. Select Portfolio Servicing, Inc., 837 F. Supp. 2d 162 (S.D.N.Y. 2011)...20 Feder v. Union Carbide Corp., 141 A.D.2d 799 (2d Dep t 1988)...20 Feldbaum v. McCrory Corp., Civ. A. Nos , 11920, 12006, 1992 WL (Del. Ch. 1992)...20 iii 4 of 43

5 Friedman v. Chesapeake & Ohio Ry. Co., 261 F. Supp. 728 (S.D.N.Y. 1966)...20 Greenwich Fin. Servs. Distressed Mortg. Fund 3, LLC v. Countrywide Fin. Corp, No /08, 2010 WL (N.Y. Sup. Ct. 2010)...20 Goshen v. Mut. Life Ins. Co., 98 N.Y.2d 314 (2002)...13 Hard Rock Cafe Int l, (USA), Inc. v. Hard Rock Hotel Holdings, LLC, 808 F. Supp. 2d 552 (S.D.N.Y. 2011)...33 Hirsch v. Food Res., Inc., 24 A.D.3d 293 (1st Dep t 2005)...33, 34 IDT Corp. v. Morgan Stanley Dean Witter & Co., 12 N.Y.3d 132 (2009)...31 Jericho Grp., Ltd. v. Midtown Dev., L.P., 32 A.D.3d 294 (1st Dep t 2006)...12 Joseph Sternberg, Inc. v. Walber 36th St. Assocs., 187 A.D.2d 225 (1st Dep t 1993)...35 LaSalle Nat'l Bank v. Perelman, 141 F. Supp. 2d 451 (D. Del. 2001)...17 Lehman Bros. Int l v. AG Fin. Prods., Inc., 38 Misc. 3d 1233(A), 969 N.Y.S.2d 804, 2013 N.Y. Misc. LEXIS 1010 (Sup. Ct. 2013)...33 Kaplan v. Peat, Marwick, Mitchell & Co., 540 A.2d 726 (Del. 1988)...4, 14 Matter of Barabash, 31 N.Y.2d 76 (1972)...32 Matter of Kaszirer v. Kaszirer, 286 A.D.2d 598 (1st Dep t 2001)...31 Matter of Part 60 Put-Back Litig., 146 A.D.3d 566 (1st Dep t 2017)...18 McCully v. Jersey Partners, Inc., 60 A.D.3d 562 (1st Dep t 2009)...13 iv 5 of 43

6 Nat l Credit Union Admin. Bd. v. HSBC Bank USA, Nat l Ass n, 117 F. Supp. 3d 392 (S.D.N.Y. 2015)... passim Nau v. Vulcan Rail & Constr. Co., 286 N.Y. 188 (1941)...25 N.Y. Univ. v. Pfizer Inc., 151 A.D.3d 42 (1st Dep t 2017)...25, 26 Palmetto Partners, L.P. v. AJW Qualified Partners, LLC, 83 A.D.3d 804 (2nd Dep t 2011)...31 Protas v. Cavanagh, Civil Action No VCG, 2012 WL (Del. Ch. May 4, 2012)...13 PETRA CRE CDO , Ltd. v Morgans Grp. LLC, 84 A.D.3d 614 (1st Dep t 2011)...25 Quadrant Structured Prods. Co. v. Vertin, 23 N.Y.3d 549 (2014)...6, 16, 17 Rabinowitz v. Kaiser Frazer Corp., 309 A.D.2d 288 (1st Dep t 2003)...18 Richbell Info. Servs. v. Jupiter Partners, L.P., 309 A.D.2d 288 (1st Dep t 2003)...33, 34 Roldan v. Allstate Ins. Co., 149 A.D.2d 20 (2d Dep t 1989)...13 Rovello v. Orofino Realty Co., 40 N.Y.2d 633 (1976)...13 SC Note Acquisitions, LLC v. Wells Fargo Bank, N.A., 934 F. Supp. 2d 516 (E.D.N.Y. 2013)...20 Silvester v. Time Warner, Inc., 1 Misc. 3d 250 (N.Y. Sup. Ct. 2003)...30 Telerep, LLC v. U.S. Int l Media, LLC, 74 A.D.3d 401 (1st Dep t 2010)...26 Velez v. Feinstein, 87 A.D.2d 309 (1st Dep t 1982)...15 v 6 of 43

7 Vig v. N.Y. Hairspray Co., 885 N.Y.S.2d 74 (1st Dep t 2009)...13 Walnut Place LLC v. Countrywide Home Loans, Inc., 96 A.D.3d 684 (1st Dep t 2012)...20 Whitney Holdings, Ltd. v. Givotovsky, 988 F. Supp. 732 (S.D.N.Y. 1997)...31 Statutes 12 Del. C Del. C passim CPLR , 13, 26 CPLR , 31 Other Authorities Restatement (Third) of Trusts vi 7 of 43

8 Plaintiffs RMBS Recovery Holdings I, LLC, RMBS Recovery Holdings II, LLC, RMBS Recovery Holdings III, LLC, and RMBS Recovery Holdings IV, LLC respectfully submit this Memorandum of Law, together with the Affirmation of Michael C. Ledley, sworn to on August 18, 2017 ( Ledley Aff. ), and the exhibits thereto, in Opposition to the Motion to Dismiss of Syncora Guarantee Inc. ( Syncora ), dated July 6, 2017 ( Syncora Br. ). 1 PRELIMINARY STATEMENT In 2009, when Syncora was on the verge of financial collapse from its insurance obligations, Syncora made a bargain with RMBS trust certificateholders willing to exchange their insured certificates for uninsured ones in newly-created UCF Trusts. In exchange for bailing Syncora out and stepping into its place to absorb losses that occurred on or after April 27, 2009, the exchanging certificateholders received two forms of consideration. Syncora agreed to pay a nominal fee and, more importantly, assigned a valuable right: Syncora s right as insurer to be reimbursed for insurance payments it made on those same exchanged bonds. Syncora has enjoyed the benefit of this bargain by obtaining hundreds of millions of dollars in refunds of insurance payments for claims paid on or after April 27, Compl. 39, 52. The Complaint alleges and Syncora s motion does not deny that Syncora has withheld from the UCF Trusts all of the approximately $200 million of the $400 million recovered by Syncora in the lawsuits it filed against JPMorgan that related to claims payments made by Syncora on or after April 27, See Compl. 61. Syncora should have paid a significant portion of this $200 million to the five UCF Trusts that plaintiffs represent, and thus has denied the UCF Certificateholders their benefit from this bargain. Finally, despite clear language in its 1 Unless otherwise stated, all emphasis (i.e., underscoring or italics) contained in quotations included in this brief was not contained in the original, but has been supplied by counsel. All capitalized terms not defined herein have the meanings ascribed to them in the Complaint. 1 8 of 43

9 Policies limiting its reimbursement rights to amounts for which it was not otherwise reimbursed, Syncora has not reported to its insureds or to the underlying Trusts that it has received any reimbursement from the JPMorgan settlement, resulting in Syncora being reimbursed more than twice over for the same pre-april 27, 2009 policy claim payments. See Compl. 8-9, 61-64, Syncora s core contention is that it promised UCF Certificateholders only a sliver of its reimbursement rights as insurer of the underlying RMBS Trusts a sliver that excludes the Syncora/JPM Settlement. But Syncora s sliver argument flies in the face of the offer it made to the underlying RMBS trust certificateholders in 2009, the express language of the UCF Trust agreements, and elemental principles of good faith, fair dealing and equity. No underlying RMBS trust certificateholder agreed to refund to Syncora 100% of the insurance proceeds applicable to his, her or its certificate in exchange for only a sliver of the corresponding reimbursement rights. Rather, Syncora promised to assign, and did assign, to the UCF Trusts, for the exclusive benefit of the Holders of the Certificates, all of Syncora s right, title and interest in and to any and all benefits accruing to [Syncora] from (a) the Underlying RMBS... (b) all present and future claims... in respect of payments or distributions on the Underlying RMBS; (c) the Assigned Reimbursement Amounts; and (d) all proceeds of the foregoing of every kind and nature whatsoever. Ledley Aff. Ex. 1 at 3 (UCF SACO Trust Agreement). Syncora fails to acknowledge this broad assignment language in its Motion to Dismiss, and instead elects to limit its challenge to the subsection pertaining to Assigned Reimbursement 2 After receiving this $200 million windfall (and not returning the excess to these new UCF Trusts), Syncora continued to siphon off monthly reimbursements from the cash flow waterfalls of the UCF Trusts, to the tune of $22 million and counting. See Compl. 66. And, as the Complaint alleges, Syncora apparently intends to siphon off even more reimbursements from a portion of the $4.5 billion global settlement between JPMorgan and certain trustees that this Court approved on August 23, See Compl Notably, Syncora does not even address these unquestionable breaches of the relevant trust agreements, thereby implicitly conceding that they form the bases for valid causes of action. 2 9 of 43

10 Amounts. This is fatal to Syncora s arguments regarding the merits of plaintiffs breach of contract claim. Further, Syncora ignores that three of the five UCF Trusts at issue describe the Assigned Reimbursement Amounts as reimbursement for prior draws... distributable to [Syncora] to the extent they relate to claim payments by [Syncora] on its financial guarantee insurance policy made on or after April 27, 2009, 3 without in any way limiting the source of such reimbursement. Syncora s motion to dismiss makes absolutely no reference to any of the abovequoted language, 4 and thereby implicitly concedes that it supports plaintiffs entitlement to recover for these three UCF Trusts. As to the two remaining UCF Trusts, Syncora selectively quotes one passage in one UCF Trust document. However, a complete review of the governing documents for that Trust flatly contradicts Syncora s interpretation. The form of assignment agreement annexed to the trust agreement cited by Syncora defines the chain of assignment as including all of [Syncora s] right, title and interest to reimbursement amounts for policy claim payments made by the Assignor [Syncora] to the extent they relate to policy claim payment[s] made by the Assignor on or after April 27, 2009 [as to the Underlying RMBS Certificates]. Heikkila Aff. Ex. D at D- 1 (USF VBSSP Trust Agreement). 5 All means all, not a sliver. 3 One of these three UCF Trusts contains language that is not identical, but is essentially the same. Instead of the language reimbursement for prior draws as quoted above, this UCF Trust refers to reimbursement amounts as set forth in Section 3.02 of the Underlying RMBS Agreement... However, that Section 3.02 refers to Syncora s reimbursement for prior draws, the exact same language quoted above. 4 In fact, Syncora makes the misleading suggestion that the definition from two of the UCF Trusts is identical to each of the other three, stating, The UCF Trust Agreements make clear that Reimbursement Amounts are defined as payments described in Section 3.03(a) of the I&I Agreement. Syncora Br. at Heikkila Aff. refers to the Appendix of Full Exhibits of Excerpted Exhibits Attached to Affirmation of Sean Heikkila in Support of Defendant Syncora Guarantee Inc. s Motion to Dismiss of 43

11 With respect to plaintiffs derivative standing, the Complaint pleads in detail plaintiffs efforts over several years to cause the trustee of the new UCF Trusts (which are Delaware statutory trusts), BNY Mellon, to take action, and BNY Mellon s failure to do so. Compl The Complaint alleges that, despite these efforts, BNY Mellon stated that they would not be asserting the claims set forth herein and that they took no position on the claims and that BNY Mellon adopted a position of neutrality as between UCF Certificateholders and Syncora. Id Plaintiffs therefore have satisfied the pleading requirements for asserting derivative claims. See 12 Del. C. 3816(c) ( [T]he complaint shall set forth with particularity the effort, if any, of the plaintiff to secure initiation of the action by the persons with authority to do so, or the reasons for not making the effort. ). In the face of the identical arguments that Syncora makes in this case, Judge Shira Scheindlin applied Delaware Supreme Court precedent to conclude that when a trustee declines to take a position on the merits of the claims and adopts a position of neutrality, it is deemed as a matter of law to have consented to plaintiffs assertion of the claims derivatively, and trust beneficiaries (like plaintiffs) have derivative standing. See Nat l Credit Union Admin Bd. v. HSBC Bank USA, N.A., 117 F. Supp. 3d 392, 399 (S.D.N.Y. 2015) (quoting Kaplan v. Peat, Marwick, Mitchell & Co., 540 A.2d 726, 731 (Del. 1988)) ( NCUA Bd. ). Given the trustee s tacit approval of the derivative litigation, Judge Scheindlin also specifically rejected as irrelevant the same argument that Syncora makes here (see Syncora Br. at 22-24): that the Complaint is defective because it fails to allege that the trustee s refusal to act was wrongful or unjustified. See NCUA Bd., 117 F. Supp. 3d at 399. BNY Mellon s tacit approval of the derivative claims also takes plaintiffs claims outside the scope of the no action clause in the UCF Trust agreements. In any event, the no action 4 11 of 43

12 clause in those agreements does not purport to restrict statutorily authorized derivative actions, see 12 Del. C. 3816(a), but rather in accordance with clear New York law 6 is limited to restricting certificateholders individual rights to institute legal action by virtue of any provision of the Trust Agreement. Under New York law, if the parties intend a no action clause to preclude derivative actions, they must say so expressly, especially where a sophisticated party like Syncora structured the transaction and drafted the agreements. Alternatively, even if the no action clause otherwise applied, the trustee s inaction and declared neutrality excuse plaintiffs from complying with it. Finally, complying with the no action clause in this case would be impossible, as it would require plaintiffs to obtain Syncora s consent to sue itself. Under such circumstances of impossibility, a no action clause does not apply. For these reasons and as further discussed below, the motion to dismiss should be denied. ALLEGATIONS IN THE COMPLAINT A. The Parties And Relevant Non-Party Plaintiffs are beneficial owners of approximately 25% of the uninsured cash flow (or UCF ) Certificates (the UCF Certificates ) issued by the five Nominal Defendant trusts (each a UCF Trust and, collectively, the UCF Trusts ), which hold the certificates (the Underlying RMBS Certificates ) in three underlying RMBS trusts (the Underlying RMBS Trusts ). 7 6 Quadrant Structured Prods. Co. v. Vertin, 23 N.Y.3d 549, (2014) ( no-action clauses are to be construed strictly and thus read narrowly ); Campbell v. Hudson & Manhattan R.R. Co., 277 A.D. 731, (1st Dep t 1951) (no action clauses are not imposed on the trustee or on bondholders acting in the status of the trustee ). 7 The three Underlying RMBS Trusts were sponsored by affiliates of the Bear Stearns Companies (now, affiliates of JPMorgan) and are known as (i) SACO I Trust ( SACO ), (ii) the Bear Stearns Structured Products Trust 2007-R5 ( BSSP 2007-R5 ), and (iii) the Greenpoint Mortgage Funding Trust 2007-HE1 ( GPMF HE1 ). Compl. 28. Syncora created the five UCF Trusts, Compl. 1, two of which relate to SACO (i.e., UCF Trusts VSACO QA2 & SACOD A 8QA2), two of which relate to BSSP 2007-R5 (i.e., UCF Trusts VBSSP PEM8 & BSSPD A A), and one of which relates to GPMF 2007-HEI (i.e., UCF Trust GRNPT A JAA4). Compl. 7, of 43

13 Compl. 11, 28, Plaintiffs are managed by investment manager Fir Tree Partners, Inc. ( Fir Tree ). Id. 12. Syncora is a monoline financial guaranty insurer (Syncora Br. at 4), that provided financial guaranty insurance for certain tranches of the Underlying RMBS Certificates issued by the Underlying RMBS Trusts and is, at relevant times, the holder of the insured cash flow (or ICF ) Certificates (the ICF Certificates ) issued by each UCF Trust. Id. 13. Non-party BNY Mellon is the trustee for the UCF Trusts. Id B. The Underlying RMBS Certificates And The UCF Trusts 1. Syncora s Insurance Of Underlying RMBS Certificates For each of the Underlying RMBS Trusts, Syncora issued a financial guaranty policy (each, a Policy ) for the benefit of holders of the Underlying RMBS Certificates and entered into an Insurance and Indemnity Agreement (each, an I&I Agreement ) that set forth Syncora s insurance obligations and provided Syncora with certain rights. Compl. 29. Once Syncora made a payment under its Policy, it was entitled to be reimbursed for that payment (plus interest and attorneys fees incurred), had the right to sue in the name of the Underlying RMBS Trusts (id ; see also Syncora Br. at 10), and was fully subrogated... to the rights of the Holders of the Insured Notes.... See, e.g., Heikkila Aff. Ex. B (BSSP 2007-R5 I&I Agreement). The I&I Agreement also permits Syncora to seek reimbursement (or indemnification) from the Seller (Bear Stearns, now JPMorgan) or the Master Servicer (EMC, now an affiliate of JPMorgan) for those same payments under the Policy (plus interest and attorneys fees incurred). Id. 3.03, However, no matter what label Syncora chose to place on its claims, Syncora only was entitled to be reimbursed for the amounts it paid under its Policies (plus interest and attorneys fees). Compl Moreover, the Policy 6 13 of 43

14 expressly limits Syncora s right to reimbursement to claims payments for which it was not otherwise reimbursed. Id Syncora s Financial Distress And Regulatory Action Poor performance of Underlying RMBS Certificates, among other things, caused Syncora s financial condition to deteriorate and resulted in Syncora s failure to maintain the minimum surplus required by the New York Insurance Law. Compl. 33. In April 2009, as a result of Syncora s financial distress, the New York State Insurance Department (the Insurance Department ) issued an order pursuant to Section 1310 of the New York Insurance Law (the 1310 Order ) for Syncora to remove the impairment and to suspend claims payments, including payments on the Underlying RMBS Certificates, until its statutory surplus recovered to the minimum required under the New York Insurance Law. Id The Offer To Purchase In early 2009, in anticipation of the Insurance Department s 1310 Order, Syncora embarked on a remediation plan to restructure or commute its financial obligations. Compl. 36. On March 11, 2009, Syncora made a tender offer (the Offer to Purchase ) for the insured RMBS certificates in 56 trusts (including those in the three Underlying RMBS Trusts involved here). Id. 37. Investor-holders of the Underlying RMBS Certificates had three options in the Offer to Purchase: (a) decline the offer, continue to hold insured Underlying RMBS Certificates on which Syncora had ceased paying claims, and risk the loss of their insurance if Syncora was shut down entirely by regulators (the Hold Option ); (b) sell their insured Underlying RMBS Certificates for cash consideration (the Sale Option ); or (c) consent to the exchange of their insured Underlying RMBS Certificates for (i) a smaller amount of cash than under the Sale Option; and (ii) a new, uninsured certificate that received distributions of the uninsured cash 7 14 of 43

15 flows from the Underlying RMBS Certificates plus additional consideration discussed below (the Consent Option ). Id. Syncora, in turn, would receive insurance cash flow certificates (the ICF Certificates ), which would entitle it to receive any future insurance proceeds paid by Syncora that related to a certificate tendered under the Consent Option (thus, effectively, putting the money back in Syncora s pocket and commuting its payments to investors). Compl. 39. The Offer to Purchase represented that the UCF Certificateholders would be entitled to receive all reimbursement amounts relating to Syncora s insurance of the tendered Underlying RMBS Certificates with respect to claims payments made by Syncora on or after the April 2009 date of the 1310 Order: SGI [i.e., Syncora] will continue to be entitled to receive all reimbursement amounts related to SGI Policy Claim Payments (as defined herein) made prior to April [27], 2009 plus interest as provided for under the terms of the Eligible RMBS Securities, but SGI will not be entitled to reimbursement amounts for SGI Policy Claim Payments made after April [27], 2009 with respect to Eligible RMBS Securities accepted pursuant to the Offer. After SGI has received all such reimbursement amounts owed to it, the holders of the UCF Trust Certificates will be entitled to receive all reimbursement amounts related to SGI Policy Claim Payments made after April [27], 2009 with respect to Eligible RMBS Securities accepted pursuant to the Offer. Compl. 41 (quoting the Offer to Purchase at 14); 8 see also Heikkila Aff. Ex. C at 28 (Offer to Purchase) (containing identical language), at 29 (containing substantially identical language). The Offer to Purchase further represented that the Trust Estate for each UCF Trust would include not only the tendered Underlying RMBS Certificates, but also the rights to reimbursement amounts on future claims payments by Syncora and all claims (and proceeds thereof) of any kind relating to those Underlying RMBS Certificates. Compl. 42. Specifically, pursuant to the Offer to Purchase, the Trust Estate consisted of the following: 8 The UCF Trust Agreements changed the measuring date for reimbursement amounts to April 27, 2009 (from April 9, 2009, as originally stated in the Offer to Purchase) of 43

16 (i) the applicable Eligible RMBS Securities and all distributions thereon after the applicable Settlement Date, (ii) the right to receive reimbursement amounts payable with respect to the applicable Eligible RMBS Securities, (iii) the Certificate Distribution Account, (iv) all present and future claims, demands, causes and choses in action in respect of payments or distributions on the applicable Eligible RMBS Securities and payments of reimbursement amounts, and (v) all proceeds of the foregoing of every kind and nature whatsoever.... Compl. 42 (quoting the Offer to Purchase at 33). The Offer to Purchase further represented that Syncora was pursuing repurchase claims, and potential litigation, on behalf of the Issuer of the Underlying RMBS Trusts, and that recoveries on those claims would be for the benefit of UCF Certificateholders: SGI [i.e., Syncora] has sought or is currently seeking to enforce the issuer s rights to require the sellers of mortgage loans to repurchase certain mortgage loans that did not satisfy the representations and warranties. In several cases, the mortgage loan seller has refused to repurchase the specified mortgage loans and SGI has commenced litigation against the mortgage loan seller to enforce the rights of the issuer.... [A]ny amounts that the issuers of Eligible RMBS Securities receive in respect of repurchases of mortgage loans or as a result of any related litigation will be used to pay amounts due under such class of Eligible RMBS Securities in accordance with the priority of payments. Holders that participate in the Offer pursuant to the Sale Option will forego the benefit of any amounts that may be distributed to the Eligible RMBS Securities as a result of such repurchase claims or litigation. Compl (quoting the Offer to Purchase at 62); see also Heikkila Aff. Ex. C at 25 (Offer to Purchase) (containing identical language). 4. Syncora s Broad Assignment Of Rights To The UCF Trusts Following the Offer to Purchase, Syncora or its agent entered into trust agreements for each UCF Trust with BNY Mellon, as trustee. Compl All UCF Trust agreements incorporate a set of Standard Terms (the Standard Terms ) and each such UCF Trust is also evidenced by a unique Trust Agreement applicable to a designated amount of Underlying 9 16 of 43

17 RMBS Certificates held by such UCF Trust (the Standard Terms and each individual Trust Agreement, together, the UCF Trust Agreements ). Id. at 47. The UCF Trust Agreements recite that the Depositor (defined as either Syncora or its agent, the fund) convey[ed] and assign[ed] to the Trustee [BNY Mellon], in trust, without recourse and for the exclusive benefit of the Holders of the Certificates, all of Syncora s: right, title and interest in and to any and all benefits accruing to [Syncora] from (a) the Underlying RMBS listed on Schedule I... (b) all present and future claims... in respect of payments or distributions on the Underlying RMBS; (c) the Assigned Reimbursement Amounts; and (d) all proceeds of the foregoing of every kind and nature whatsoever.... Ledley Aff. Ex. 1 at 1 (UCF SACO Trust Agreement); 9 see Compl. 48. The Assigned Reimbursement Amounts are defined in the UCF Trust Agreements to be reimbursements to which Syncora is entitled to the extent they relate to claim payments by [Syncora] on its financial guarantee insurance policy made on or after April 27, Ledley Aff. Ex. 1 at 2 (UCF SACO Trust Agreement); see Compl. 49. Syncora also agreed in the UCF Trust Agreements to take any action necessary, appropriate or desirable to evidence, perfect, preserve or protect the interest of [each UCF Trust] in the Trust Estate or to consummate the transactions contemplated by the Trust Agreement.... Compl. 50. C. The Syncora/JPMorgan Settlement On March 31, 2009 (i.e., shortly after the Offer to Purchase), Syncora commenced the first litigation relating to one of the Underlying RMBS Trusts: Syncora Guarantee Inc. v. EMC Mortgage Corporation, No. 09-cv-3106 (S.D.N.Y.) (the SDNY Action ) (pertaining to GPMF 2007-HE1). In the SDNY Action, Syncora sought reimbursement from JPMorgan for insurance claims payments it was required to make to the Underlying RMBS Trusts based on loans that 9 The other four trusts contained substantively identical assignments from Syncora (or, for the two 2009 UCF Trusts at issue, from a fund which was assigned such rights by Syncora), although the formatting varied slightly of 43

18 breached representations and warranties under the Governing Documents 10 for the Underlying RMBS Trusts. Compl As Syncora admits in its motion papers, that action was brought by Syncora on behalf of both itself and the UCF Trusts. 11 Years later, in 2011 and 2012 (i.e., long after the transactions contemplated by the Offer to Purchase were completed), Syncora filed three additional lawsuits relating to the Underlying RMBS Trusts against entities owned by or affiliated with JPMorgan: (i) Syncora Guarantee Inc. v. JPMorgan Securities LLC, New York Supreme Court, New York County, Index No /2011 (pertaining to GPMF 2007-HE1); (ii) Syncora Guarantee Inc. v. EMC Mortgage LLC, New York Supreme Court, New York County, Index No /2012 (pertaining to SACO ); and (iii) Syncora Guarantee Inc. v. EMC Mortgage LLC, New York Supreme Court, New York County, Case No /2012 (pertaining to BSSP 2007-R5) (collectively, and together with the SDNY Action, the JPMorgan Actions ). Id On or about February 24, 2014, Syncora entered into a settlement in principle of the JPMorgan Actions for $400 million (the Syncora/JPM Settlement ), and on information and belief, JPMorgan paid the settlement amount to Syncora sometime in March Id. 59, 62. The Syncora/JPM Settlement more than fully reimbursed Syncora for its pre-april 27, 2009 claim payments. Id , 64. From the inception of the Underlying RMBS Trusts to April 27, 2009, the dollar value of the insurance claims paid by Syncora, plus interest thereon through March 1, 2014, was approximately $200 million. Id. 60. As a result, the $400 million recovered by Syncora in the Syncora/JPM Settlement exceeded the claims payments made by Syncora prior to April 27, 2009, plus accrued interest, by approximately $200 million, a 10 Governing Documents is defined in paragraph 19 of the Complaint, and on page 1 of Syncora s moving brief. 11 Syncora Br. at 30 ( SGI is seeking to enforce these repurchase claims in the name of and for the benefit of the trust fund, as well as to assert certain claims for damages directly in its capacity as insurer. ) (quoting Offer to Purchase at 69) (emphasis removed) of 43

19 substantial percentage of which Syncora should have transferred to the UCF Trusts for the benefit of the UCF Certificateholders (but did not). Id D. Syncora Continues To Receive Other Reimbursement Amounts That Belong To The UCF Trusts Since the Syncora/JPM Settlement, BNY Mellon has distributed over $22 million in monthly payments to Syncora over and above the appropriate distributions to which Syncora is entitled as holder of the ICF Certificates, ostensibly as reimbursements for Syncora s pre-april 27, 2009 claims payments for the Underlying RMBS Certificates. Compl. 66. However, because Syncora was fully reimbursed for its pre-april 27, 2009 claims payments as a result of the Syncora/JPM Settlement, it is improperly retaining the majority of those reimbursement amounts, which belong to the UCF Trusts. Id. Moreover, on August 23, 2016, this Court entered a judgment approving the $4.5 billion settlement between JPMorgan and trustees for approximately 300 RMBS trusts (including the three Underlying RMBS Trusts) (the JPMorgan Global Settlement ). Id Due to Syncora s full reimbursement for all pre-april 27, 2009 claims payments, all of the settlement allocation with respect to the Underlying RMBS Certificates tendered to Syncora in the Exchange Offering should be paid to the UCF Trusts, for the benefit of the UCF Certificateholders. Id. 71. However, absent Court intervention, a significant portion of such funds due and owing to the UCF Trusts may flow improperly to Syncora as reimbursement amounts. Id. I. Motion To Dismiss Standard ARGUMENT On a motion to dismiss pursuant to CPLR 3211(a)(7), the complaint is afforded a liberal construction. Jericho Grp., Ltd. v. Midtown Dev., L.P., 32 A.D.3d 294, 298 (1st Dep t 2006) of 43

20 (citation omitted). [T]he court is required to accept as true the facts as alleged in the complaint, accord the plaintiff the benefit of every favorable inference and strive to determine only whether the facts alleged fit within any cognizable legal theory. Vig v. N.Y. Hairspray Co., 885 N.Y.S.2d 74, 77 (1st Dep t 2009). Such deference applies even when specific facts are alleged upon information and belief. Roldan v. Allstate Ins. Co., 149 A.D.2d 20, 40 (2d Dep t 1989). Dismissal must be denied if there is a reasonable chance, even if some think it is small, that plaintiff will ultimately prevail. Rovello v. Orofino Realty Co., 40 N.Y.2d 633, 389 (1976). Documents beyond the Complaint may be considered under CPLR 3211(a)(1) only to the extent they are undeniable and utterly refute[] plaintiff s factual allegations, conclusively establishing a defense as a matter of law. McCully v. Jersey Partners, Inc., 60 A.D.3d 562, 562 (1st Dep t 2009) (emphasis in original) (quoting Goshen v. Mut. Life Ins. Co., 98 N.Y.2d 314, 326 (2002)). II. Plaintiffs Have Derivative Standing A. The Trustee Consented To This Action The UCF Trusts are Delaware statutory trusts, see Compl. 14, which are entities that can sue and be sued in their own names. See 12 Del. C. 3804(a). However, as with Delaware corporations, beneficiaries of a Delaware statutory trust also may sue derivatively on behalf of the trust if persons with authority to do so have refused to bring the action or if an effort to cause those persons to bring the action is not likely to succeed. 12 Del. C. 3816(a). 12 The Complaint pleads in detail plaintiffs efforts over several years to cause BNY Mellon the party with authority to sue on behalf of the UCF Trusts to take action and BNY Mellon s 12 Derivative litigation involving Delaware statutory trusts is subject to the same Delaware case law governing shareholder derivative litigation. See, e.g., Protas v. Cavanagh, Civil Action No VCG, 2012 WL , at *5,*8 (Del. Ch. May 4, 2012); NCUA Bd., 117 F. Supp. 3d at of 43

21 subsequent inaction and steadfast decision to remain neutral. Compl The Complaint further alleges that BNY Mellon stated that they would not be asserting the claims set forth herein and that they took no position on the claims and adopted a position of neutrality as between UCF Certificateholders and Syncora. Id Plaintiffs therefore have satisfied the pleading requirements for asserting derivative claims. See 12 Del. C. 3816(c) ( [T]he complaint shall set forth with particularity the effort, if any, of the plaintiff to secure initiation of the action by the persons with authority to do so, or the reasons for not making the effort. ). 13 Indeed, in the face of the exact same arguments that Syncora makes in this case, Judge Scheindlin applied Delaware Supreme Court precedent to conclude that when a trustee declines to take a position on the merits of the claims and adopts a position of neutrality, it is deemed as a matter of law to have consented to trust beneficiaries assertion of the claims derivatively: [W]hen a corporation chooses to take a position in regards to a derivative action asserted on its behalf, it must affirmatively object to or support the continuation of the litigation. Thus, a position of neutrality must be viewed as tacit approval for the litigation. BNY Mellon failed to affirmatively object to the litigation, and instead stated that it took no position on the merits a position of neutrality this Court must view as tacit approval under Kaplan v. Peat, Marwick, Mitchell & Co. NCUA Bd., 117 F. Supp. 3d at 399 (quoting Kaplan, 540 A.2d at 731). Given the trustee s tacit approval of the derivative litigation, Judge Scheindlin also specifically rejected as irrelevant the same argument that Syncora makes here (see Syncora Br. at 22-24): that the Complaint fails to allege that the trustee s refusal to act was wrongful or unjustified. See NCUA Bd., 117 F. Supp. 3d at 399 (Plaintiff need not plead that BNY Mellon s refusal to take action was wrongful, because BNY Mellon, while declining to pursue the suit itself, consented to [plaintiff] bringing 13 Rather than accept the allegations in the Complaint (at 72-80), Syncora s opposition papers instead contain pure speculation and assumption concerning the trustee s actions, which may not be accepted as true on a motion to dismiss. See, e.g., Syncora Br. at 23 (Trustee acted reasonably, likely understands... claims are meritless, and presumably has a deep understanding of the UCF Trusts rights under the relevant agreements ) of 43

22 the action. ). Indeed, a statement of neutrality without any purported justification is, by definition, unjustified. Syncora s reliance on Velez v. Feinstein (Syncora Br. at 22-24) is misplaced because Velez does not address the situation where the trustee receives a demand and declines to act at all. In fact, the plaintiffs in Velez did not make a demand on the trustees. Velez v. Feinstein, 87 A.D.2d 309, (1st Dep t 1982). Moreover, Velez only states that derivative standing normally require[s] either a showing of a demand on the trustees... and of a refusal so unjustifiable as to constitute an abuse of the trustee s discretion, or... that because of the trustees conflict of interest, or some other reason, it is futile to make such a demand. Id. at 315. It is not normal for a trustee to neither accept nor refuse the demand, but rather to take no position at all and declare neutrality. Syncora, citing the Restatement, notes that a trustee has discretion to decline to bring suit if it determines that to be in the best interests of the beneficiaries (see Syncora Br. at 22-23), but that is irrelevant because BNY Mellon made no such determination and provided no justification for its declared neutrality. Even where a trustee has discretion, judicial intervention is warranted if the trustee, arbitrarily or without knowledge of or inquiry into relevant circumstances, fails to exercise the discretion. Restatement (Third) of Trusts 87, cmt. c. Such is the case here. B. The No Action Clause Does Not Bar Plaintiffs Derivative Claims The no action clause in the UCF Agreements on which Syncora relies provides, in relevant part, as follows: No certificateholder shall have any right by virtue of any provision of the Trust Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to the Trust Agreement, unless the Holders of Certificates entitled to at least 25% of the Voting Rights of each Class shall have made written request upon the Trustee to institute such action, suit or proceeding, in its own name as Trustee under the Trust of 43

23 Agreement and shall have offered to the Trustee such indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 15 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding.... Heikkila Aff. Ex. I (Standard Terms to Trust Agreements). Syncora s contention that this clause bars plaintiffs derivative claims is incorrect for at least four reasons. First, the no action clause in the UCF Trust Agreements does not purport to restrict statutorily authorized derivative actions, see 12 Del. C. 3816(a), but rather is limited to UCF Certificateholders individual rights to institute legal action by virtue of any provision of the Trust Agreement. 14 See Heikkila Aff. Ex. I (Standard Terms). Many decades ago, the First Department made this exact same distinction in holding that a no action clause containing very similar wording did not bar a derivative claim by a bondholder but rather only applied to bondholders acting in their own individual right as bondholders. See Campbell v. Hudson & Manhattan R.R. Co., 277 A.D. 731, (1st Dep t 1951) (holding that the conditions in a no action clause are not imposed on the trustee or on bondholders acting in the status of the trustee ). Indeed, much more recently, New York s Court of Appeals has instructed that noaction clauses are to be construed strictly and thus read narrowly. Quadrant Structured Prods. Co. v. Vertin, 23 N.Y.3d 549, 560 (2014). In Quadrant, the New York Court of Appeals recognized that the no action clause before it again, containing very similar wording to the clause at issue here with its specific reference to the Indenture, on its face limits the clause to contract rights recognized by the Indenture itself. Id. The Court of Appeals bolstered its narrow reading of the no action clause through a textual analysis, by noting that the limitation sought to 14 The Delaware Trust Statute provides that the right of a beneficiary of a statutory trust to bring a derivative action may be subject to additional contractual restrictions, 12 Del. C. 3816(e), but the no action clause at issue here does not purport to restrict statutorily authorized derivative actions of 43

24 be imposed by the defendant there, rights as a securityholder were not mentioned in the no action clause but were referenced in another part of the trust instrument. Id. at Similarly, in the present case, the UCF Trust Agreements contain numerous references to the Delaware Trust Statute, but not in the no action clause. See, e.g., Heikkila Aff. Ex. I 1.01 (Standard Terms) (Definition of Delaware Trust Statute ), 11.13; Ledley Aff. Ex. 1 3 (UCF SACO Trust Agreement). And, significantly, the UCF Trust Agreements contain a specific provision stating that [t]he rights, remedies, powers, and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law, Heikkila Aff. Ex. I (Standard Terms), which in this case evidences an intention to preserve statutorily authorized derivative actions. Thus, consistent with Quadrant and Campbell, this Court should strictly and narrowly construe the no action clause at issue in this case to not affect or limit statutorily authorized derivative actions on behalf of the UCF Trusts. If a sophisticated party like Syncora wanted to restrict UCF Certificateholders right to sue derivatively, it was required to say so expressly. Second, under Delaware law, [n]o action provisions generally require that security holders satisfy certain criteria before bringing a suit without authorization of a trustee appointed to protect their interests. See LaSalle Nat l Bank v. Perelman, 141 F. Supp. 2d 451, 462 (D. Del. 2001). As discussed above, BNY Mellon s tacit approval authorizes plaintiffs to bring the derivative claims in this action. See NCUA Bd., 117 F. Supp. at 399 (applying Delaware law). That authorization takes plaintiffs claims outside the scope of the no action clause. The tacit approval of BNY Mellon also ensures that the purported purpose of the no action clause to prevent frivolous claims that are not in investors collective economic interest is satisfied. See Syncora Br. at 17 (citing cases). If BNY Mellon believed the claims were without merit or of 43

25 otherwise were not in the best interests of the UCF Trusts, it had ample opportunity to so inform plaintiffs and object to the assertion of the claims. Moreover, BNY Mellon is now well aware of this action, as it has been on file for nearly four months, and it has taken no action to intervene or otherwise thwart plaintiffs initiative for the benefit of UCF Certificateholders. Third, even if the no action clause otherwise applied, BNY Mellon s inaction and declared neutrality excuse plaintiffs from complying with it: If a trustee under such an indenture acts in bad faith, or, abdicating its function with respect to the point in question, declines to act at all, bondholders for themselves and others similarly situated may bring a derivative action in the right of the trustee, rather than in their own individual rights as bondholders. In that event they are not subject to the limitations of [the no action clause], which are not imposed on the trustee or on bondholders acting in the status of the trustee. Campbell, 277 A.D. at ; 15 see also Rabinowitz v. Kaiser Frazer Corp., 111 N.Y.S.2d 539, (N.Y. Sup. Ct. 1952); CFIP Master Fund, Ltd. v. Citibank, N.A., 738 F. Supp. 2d 450, 477 (S.D.N.Y. 2010). Here, BNY Mellon declined to act at all, effectively abdicating its function with respect to the point in question, Campbell, 277 A.D. at , by refusing to take a position on the merits and assuming a position of neutrality. See Compl Under these circumstances, the requirements of the no action clause are inapplicable. See Campbell, 277 A.D. at Fourth, complying with the no action clause in this case would be impossible, as it would require plaintiffs to obtain Syncora s consent to sue itself. Unlike standard no action clauses, the no action clause in the UCF Trust Agreements requires UCF Certificateholders to obtain the consent and cooperation of Syncora (as ICF Certificateholder) before making a demand on BNY 15 In a decision earlier this year, the First Department reaffirmed the rule announced in Campbell, see Matter of Part 60 Put-Back Litig., 146 A.D.3d 566, 568 (1st Dep t 2017), but distinguished the case before it on the ground that the putative derivative plaintiff (unlike plaintiffs here) did not allege that the trustee declined to act or set forth with particularity [its] efforts... to secure the initiation of the action by the trustee. Id of 43

26 Mellon. See Compl. 84; Heikkila Aff. Ex. I (Standard Terms) (requiring 25% of the Voting Rights of each Class ). It is well settled that a no action clause is inapplicable to claims against the trustee, as it would be absurd to require the [] holders to ask the Trustee to sue itself. Cruden v. Bank of N.Y., 957 F.2d 961, 968 (2d Cir. 1992). It would be no less absurd to require plaintiffs to ask Syncora for its consent to, and cooperation in, suing itself. Syncora s response acknowledges that it holds all of the ICF Certificates in the UCF Trusts (Syncora Br. at 21), but nonetheless, and without citing any authority, attempts to downplay and brush aside the absurdity of asking it to sue itself, stating, [t]he fact that it may be difficult for a plaintiff to convince other certificateholders to demand that a trustee file suit does not excuse violating the no-action clause. Syncora Br. at Syncora s unsupported proposition is baseless, as the idea of plaintiffs convincing Syncora to allow itself to be sued is ridiculous, and accepting it would create the untenable result that Syncora has a contractual right to absolute immunity from a derivative suit by the UCF Certificateholders. Under such circumstances of impossibility, a no action clause does not bar an action against a party whose consent to sue itself otherwise would be required under the no action clause. See, e.g., Blackrock Core Bond Portfolio v. U.S. Bank, Nat l Ass n, Nat l Ass n, 165 F. Supp. 3d 80, (S.D.N.Y. 2016) (Forrest, J.) (compiling cases). 17 None of the circumstances in the cases cited by Syncora are remotely comparable to this case. Those cases primarily involved claims where the plaintiffs made no effort to secure action 16 Syncora asserts, without citation, that BNY Mellon has a duty to protect the UCF Trusts, including by bringing meritorious lawsuits against third parties. Syncora Br. at 15. However, BNY Mellon would undoubtedly assert as RMBS trustees have in dozens of pending cases filed against them by investors that it had no duty to sue unless directed to do so by holders of 25% of each class of certificates because no implied covenants or obligations shall be read into the Trust Agreements against the Trustee. Heikkila Aff. Ex. I 8.01 (Standard Terms). 17 Although Syncora does not argue otherwise, the impossibility of securing Syncora s consent to be sued also excuses compliance with the other requirements of the no action clause because the provisions form an integrated whole. See Blackrock Core Bond Portfolio v. U.S. Bank, Nat l Ass n, 165 F. Supp. 3d 80, (S.D.N.Y. 2016) of 43

27 by the trustee, see, e.g., SC Note Acquisitions, LLC v. Wells Fargo Bank, N.A., 934 F. Supp. 2d 516, 531 (E.D.N.Y. 2013); Akanthos Capital Mgmt., LLC v. CompuCredit Holdings Corp., 677 F.3d 1286, 1298 (11th Cir. 2012); Feldbaum v. McCrory Corp., Civ. A. Nos , , 12006, 1992 WL , at *6 (Del. Ch. 1992); Greenwich Fin. Servs. Distressed Mortg. Fund 3, LLC v. Countrywide Fin. Corp., No /08, 2010 WL , at *4 (N.Y. Sup. Ct. 2010), or where the trustee actually had taken action but the plaintiffs were dissatisfied. See Walnut Place LLC v. Countrywide Home Loans, Inc., 96 A.D.3d 684, (1st Dep t 2012) (trustee negotiated $8.5 billion settlement); Feder v. Union Carbide Corp., 141 A.D.2d 799, 800 (2d Dep t 1988) (trustee obtained opinion of counsel that advised against commencing suit). 18 Critically, in none of the cases on which Syncora relies did the trustee elect to remain neutral rather than assert claims that would benefit one class of holders at the expense of another, nor did such courts apply no action clauses requiring the plaintiff(s) to obtain consent from the defendant to sue itself. III. The Complaint Pleads Actionable Breaches of Contract The Complaint alleges and Syncora s opposition papers do not deny that the $400 million recovered by Syncora in the Syncora/JPM Settlement stemmed entirely from claims on the Underlying RMBS Trusts and exceeded the claims payments made by Syncora prior to April 27, 2009 (the 1310 Order Date ) the date after which any such subsequent reimbursements were assigned to the certificateholders by approximately $200 million. See Compl. 61. A 18 Others dealt with bondholders suing on direct, individual claims, not derivative claims. See, e.g., Emmet & Co., Inc. v. Catholic Health East, 37 Misc. 3d 854, 861 (N.Y. Sup. Ct. 2012); Ellington Credit Fund, Ltd. v. Select Portfolio Servicing, Inc., 837 F. Supp. 2d 162, 187 (S.D.N.Y. 2011). In Friedman v. Chesapeake & Ohio Ry. Co., 261 F. Supp. 728, (S.D.N.Y. 1966), the court dismissed the suit on the merits, finding that the claim borders on the frivolous of 43