Powell et al v. Ocwen Financial Corporation et al 29 U.S. Code § 1109.Liability for breach of fiduciary duty

A very interesting ACTIVE case in NYC

The Law: 29 U.S. Code § 1109.Liability for breach of fiduciary duty

(a)Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary. A fiduciary may also be removed for a violation of section 1111 of this title.

(b)No fiduciary shall be liable with respect to a breach of fiduciary duty under this subchapter if such breach was committed before he became a fiduciary or after he ceased to be a fiduciary.

I. INTRODUCTION

1. This is a civil enforcement action under the Employee Retirement Income Security Act of
1974 (“ERISA”), 29 U. S. C. § 1001 et seq.

2. The conduct at issue here relates to the widespread securitization of residential mortgages
that precipitated the 2008 financial crisis. The misconduct in mortgage securitization and the
harm it caused is well-known and has been the subject of much litigation.1 Most of that litigation
has now concluded or is in its last throes. Defendants’ misconduct came later, after the housing
bubble burst, mortgage lending collapsed, homeowners’ equity disappeared and millions of
homeowners went underwater, defaults on mortgages and foreclosures became rampant, and
investments in mortgages became toxic assets.

3. Plaintiffs are trustees of the United Food & Commercial Workers Unions & Employers
Midwest Pension Plan (“the Plan” or “the UFCW Plan”), a benefit plan subject to the protections
of ERISA. Like many other private benefit plans subject to the protections of ERISA (“benefit plans”), the Plan invested in residential mortgages through financial instruments known as
mortgage-backed securities.

4. Benefit plans invested in securitized mortgages either directly, as did the Plan here, or
through entities whose underlying assets include plan assets by reason of one or more more
benefit plans’ investment in the entity. 29 C.F.R. §2510.3-101(f)(2)(iii).

5. Investments in securitized mortgages are made through either indenture trusts or trusts
governed by pooling and servicing agreements (“PSAs”). Both types of trusts are pooled
investment vehicles with no assets other than the pool of securitized mortgages and related
property, such as REO and insurance. A trustee holds legal title to the assets of both indenture
and PSA trusts for the benefit of investors.

6. Indenture trusts establish special purpose vehicles (“SPVs”) to issue non-recourse debt
obligations, or notes, and transfer legal ownership of the pool of mortgages and related property
to the indenture trustee for the benefit of investors. The SPVs nominally issue the notes but hold
no assets after these transfers are effectuated and engage in no activity to generate revenue. The
only source of payment on the notes is revenue from the pool of mortgages. PSA trusts issue
pass-through certificates that represent beneficial ownership interest in the pool of mortgages and
related property for which the trustee of the PSA trust holds legal ownership for the benefit of
investors.

7. The UFCW Plan invested in securitized mortgages through both indenture trusts and PSA
trusts. The Plan and other investors are the beneficial or equitable owners of the mortgages held
in the indenture and PSA trusts. Because the Plan holds an equitable or beneficial ownership
interest in these underlying assets and because the relevant trusts are pooled investment vehicles
by which investors indirectly retain management services for the mortgages, the assets of the
trusts are plan assets under ERISA.

8. For six of the indenture and PSA trusts in which the Plan invested, Defendant Ocwen
Financial Corporation (“Ocwen”) was either the manager or “servicer” initially or became
servicer of all or some of the mortgages held in these trusts. Notwithstanding minor variations in
Ocwen’s title, Ocwen’s control of the mortgages and Ocwen’s conduct as servicer is the same
across all indenture and PSA trusts.

9. Ocwen exercised sweeping, unchecked control of the management and disposition of
securitized mortgages, and was a fiduciary under ERISA to the benefit plans that invested in
those mortgages. As a fiduciary to benefit plan investors in securitized mortgages, Ocwen owed
those benefit plan investors a duty of diligence and undivided loyalty. Instead, Ocwen
consistently acted to increase its own profits to the detriment of investors.

10. Ocwen’s self-enrichment was a breach of Ocwen’s fiduciary duty to benefit plan
investors under ERISA.

11. Ocwen’s breach of fiduciary duty caused enormous losses on securitized mortgages in
which the Plan and other benefit plans invested. Millions of American families depend upon
those benefit plans for health care and retirement income, and millions were harmed by Ocwen’s
conduct.

12. Ocwen sabotaged mortgage modifications and otherwise pushed struggling homeowners
into needless default and foreclosure, which greatly increased the benefit plans’ losses. Ocwen
did so because Ocwen profited more from mortgages in default or foreclosure than from
performing mortgages.

13. Ocwen charged excessive or otherwise illegal fees for late payments, partial payments,
bounced checks and the like. Ocwen treated a homeowner’s next monthly payment as partial
payment if the payment did not include those fees, a practice known as fee pyramiding.

14. Ocwen collected excessive charges for services associated with default and foreclosure,
such as home inspections, appraisals, and maintenance and marketing of foreclosed homes.
Ocwen split profits with force-placed insurers, home warranty companies and other vendors, or
took commissions or other payments from third parties, all prohibited kickbacks under ERISA,
per se breaches of fiduciary duty.

15. Defendant Wells Fargo Bank N.A. (“Wells”) is the “master servicer” to Ocwen’s
servicer in three of the trusts in which the UFCW Plan invested. Under the governing documents
of these trusts, Wells’ duties as master servicer are to supervise the performance of the servicer
and to monitor the compliance of servicers with the duties of servicers. Wells has the power as
master servicer to terminate servicers for breach of servicing duties. Wells serves as master
servicer and has these same duties and responsibilities for many other trusts for which Ocwen is
servicer.

16. Wells’ derelections as master servicer enabled Ocwen to breach Ocwen’s fiduciary
duties to benefit plan investors. Wells is thus jointly and severally liable for Ocwen’s breach of
fiduciary duty under ERISA.

17. Wells has the authority and an express contractual duty under the governing documents
of the three trusts at issue for which Wells was master servicer, and of a significant number of all
trusts for which Ocwen is servicer, to prosecute legal claims for servicer misconduct on behalf of
investors. Those legal claims, or choses in action, on behalf of benefit plan investors are also
plan assets. Because of Wells’ control of those choses in action, Wells is a fiduciary to those
benefit plan investors with respect to those legal claims.

18. Wells has done little or nothing to investigate legal claims against Ocwen on behalf of
benefit plan investors for servicer misconduct, despite overwhelming evidence of pervasive
actionable misconduct, and nothing at all to prosecute such claims.

19. Wells’ conduct as master servicer was not born of inattention or sloth, but was
intentional and self-interested. Wells was deeply involved in mortgage securitization and remains
deeply involved in mortgage servicing. The financial institutions involved in mortgage
securitization and servicing are connected by a complex network of legal and financial
relationships. Wells, or sibling subsidiaries of the same corporate parent, is sponsor for some
trusts, securitization trustee for other trusts, and master servicer or servicer for still more. As
servicer, Wells engaged in much of the same self-dealing and other misconduct in which Ocwen
engaged. Diligent enforcement of investor rights across all trusts would be in the best interest of
investors, but would be financially damaging and perhaps ruinous for Wells and many other
financial institutions. Willful blindness and complicit passivity by master servicers allowed
financial institutions involved in mortgage securitization to avoid those consequences and shift
losses to investors, the beneficial owners of the mortgages.

20. Exculpatory provisions in the governing documents of securitization trusts have stymied
many legal claims by investors against securitization trustees, master servicers and servicers.
Those provisions are void as against public policy with respect to claims on behalf of benefit
plans for breach of fiduciary duty under ERISA.

21. Plaintiffs bring claims in this action on behalf of two classes, one a subset of the other.
The first set of claims is on behalf of a class of trustees of benefit plans that invested, directly or
indirectly, in securitized mortgages that Ocwen serviced. The second set of claims is on behalf of
a class of trustees of benefit plans that invested, directly or indirectly, in securitized mortgages
that Ocwen serviced for which Wells was the master servicer. The two sets of claims are closely
related.

22. On behalf of the families that depend upon those benefit plans, Plaintiffs seek to recover
losses from Ocwen’s breach of fiduciary duties, to disgorge Ocwen’s profits from prohibited self-dealing, to hold Wells jointly and severally liable with Ocwen for Ocwen’s misconduct, and
to enjoin Ocwen from receiving and third parties from paying kickbacks that are prohibited
transactions under ERISA.

23. Plaintiffs also seek to recover losses from Wells’ failure to investigate potential legal
claims against Ocwen and others and to make an informed decision in the best interests of
participants and beneficiaries in those benefit plans to pursue those claims. An informed decision
in the best interests of participants and beneficiaries of benefit plan investors would have been to
prosecute meritorious legal actions against Ocwen and others vigorously.

II. JURISDICTION AND VENUE

24. Plaintiffs are benefit plan trustees and, therefore, are fiduciaries of the Plan empowered
to bring an action to (1) recoup losses and obtain other appropriate relief for breach of fiduciary
duty under 29 U.S.C § 1132(a)(2) and 29 U.S.C § 1109 and (2) to obtain appropriate equitable
relief pursuant to 29 U.S.C. § 1132(a)(3).

25. This Court has federal subject matter jurisdiction over this action pursuant to 28 U.S.C. §
1331 (federal question) and 29 U.S.C. § 1132(e)(1) (ERISA). The district courts of the United
States have exclusive jurisdiction over claims for breach of fiduciary duty under ERISA. 29
U.S.C. § 1132(e)(1).

26. This Court has personal jurisdiction over each Defendant because each Defendant can be
found in and transacts business in this District. In addition, many acts prohibited by ERISA
occurred in this District.

27. Venue is proper in this District because some of Defendants’ conduct for which
Plaintiffs seek relief occurred in this district and Defendants may be found in this district. 28
U.S.C. § 1391(b) and 29 U.S.C. § 1132(e)(2).