RMBS RECOVERY HOLDINGS, I, LLC, ET AL.
HSBC BANK USA, N.A. HSBC BANK USA, N.A.
RMBS RECOVERY HOLDINGS, I, LLC, ET AL.
THE CIRCUIT COURT OF FAIRFAX COUNTY Stephen C. Shannon,
BERNARD GOODWYN JUSTICE.
these appeals, we consider whether the circuit court erred
when it sustained a motion to dismiss based upon forum
selection clauses, and when it denied a motion to dismiss
based upon the doctrine of forum non conveniens.
30, 2017, RMBS Recovery Holdings I, LLC; RMBS Recovery
Holdings II, LLC; RMBS Recovery Holdings IV, LLC; RMBS
Recovery Holdings V, LLC; Fir Tree Ref III Master Fund, LLC;
Fir Tree Capital Opportunity Master Fund, LP; and Fir Tree
Capital Opportunity Master Fund III, LP (collectively, Funds)
filed suit against HSBC Bank USA, National Association (HSBC)
in the Circuit Court of the County of Fairfax. The four
limited liability companies were organized in Delaware, and
the two limited partnerships in the Cayman Islands.
HSBC's main office is in McLean, Virginia, which is in
Fairfax County (Fairfax), and HSBC does business throughout
the United States, including Virginia.
Funds assert that HSBC serves as an indenture
trustee of three trusts in which the Funds have
invested. The trusts, established in 2005 and 2006, are
residential mortgage-backed securities trusts; they are made
up of thousands of residential mortgage loans. The trusts
were formed pursuant to pooling and service agreements
(PSAs). According to their contractual terms, the PSAs are to
be construed according to the laws of the State of New York.
trusts are governed by numerous contractual provisions which
require that only qualifying loans be deposited into the
trusts. The sponsors of the trusts, DB Structured Products,
Inc. and Nomura Credit & Capital, Inc. (collectively
Sponsors), were responsible for depositing only qualifying
loans, and agreed to either replace or repurchase defective
loans placed in the trusts.
Funds claim that without their knowledge, the trusts were
"filled with defective mortgage loans" and HSBC, as
trustee, had a duty to protect the Funds by having the
Sponsors repurchase the deficient loans or by filing suit
against the Sponsors. Beginning in 2011, the Funds reportedly
notified HSBC that the Sponsors had breached their
representations and warranties, and asked HSBC to enforce the
Sponsors' repurchase obligations. HSBC responded that it
would not act until the Funds agreed to a Confidentiality and
Indemnification Agreement (CIA).
light of the impending statutes of limitations bar, the Funds
filed derivative actions against the Sponsors (Repurchase
Actions) prior to expiration of the limitations periods. The
Funds and HSBC executed CIAs on July 12, 2012 and September
6, 2012. Both dates are after the statutes of limitations had
expired on the claims against the Sponsors. After the CIAs
were executed, HSBC was substituted into the Repurchase
Actions as plaintiff. However, the Repurchase Actions, which
were filed in New York, were dismissed as untimely because
HSBC failed to intervene before the statutes of limitations
Fairfax complaint, the Funds claimed that HSBC
"knowingly let the statutes of limitations expire,
depriving certificate holders of any recourse from the
[S]ponsors, and needlessly costing the trusts hundreds of
millions of dollars." Based upon HSBC's failure to
act, the Funds claimed breach of contract, breach of
fiduciary duty, negligence, breach of the implied covenant of
good faith and fair dealing, and violations of the Federal
Trust Indenture Act.
to Dismiss for Forum Non Conveniens
29, 2017, HSBC filed a motion to dismiss for forum non
conveniens, pursuant to Code § 8.01-265. HSBC argued
that New York City was a "more convenient and practical
forum" because (1) the Funds' investment manager,
Fir Tree Partners, Inc. (Fir Tree) is located in New York,
(2) the PSAs were formed under New York law, (3) the related
documentary evidence and witnesses are primarily located in
New York, (4) the Repurchase Actions were filed in New York,
and (5) New York courts are familiar with the legal issues
presented in this case because "virtually
identical" actions are pending in New York courts
against indenture trustees of similar trusts.
support, HSBC attached a declaration from Thomas MacKay,
HSBC's Senior Vice President. MacKay attested that (1)
HSBC's "principal executive office" and the
department that oversees indenture trustee functions are
located in New York City, (2) the Sponsors' principal
place of business is New York, (3) HSBC employees directly
involved with the underlying allegations work in New York
City, and (4) one of the Repurchase Actions has been pending
on appeal in New York since 2016.
response, the Funds argued that the motion should be denied
because HSBC cannot show that Fairfax is a
"substantially inconvenient" jurisdiction. They
asserted that (1) HSBC is a citizen of Virginia because its
main office is in McLean, Virginia, (2) four of the Funds are
Virginia citizens because they have investors who reside in
and are citizens of Virginia, (3) the plaintiff's choice
of forum has a presumption of correctness, (4) HSBC's
employees have not been identified as witnesses, (5) nine of
the fourteen identified witnesses live outside of New York,
"and for most Fairfax is closer and faster to reach than
New York," (6) four of the five witnesses in New York
are employees of litigants, and it is presumed the employer
can ensure their testimony at trial, (7) witnesses can be
deposed where they live, (8) the relevant documents are
electronic, (9) Virginia courts are capable of applying New
York law, and (10) "[c]onsiderations of ease, speed, and
economy strongly favor Fairfax over New York,"
especially considering New York courts permit interlocutory
appeals "of right of virtually all trial court
rulings," thereby prolonging cases almost indefinitely.
Funds attached declarations of Jay S. Handlin, an attorney
representing the Funds, and David Proman, the managing
director of Fir Tree. Handlin stated that in twenty other
cases similar to the one at issue, including three against
HSBC, all documents have been produced electronically and
depositions have been taken of witnesses where they live or
work to reduce inconvenience. He also stated that Fairfax,
Virginia was closer to most of the signatories to the PSAs at
issue. Proman listed the fourteen known witnesses, and noted
that only five of them live or work in New York.
circuit court held a hearing on HSBC's motion to dismiss
on July 21, 2017. During the hearing, HSBC contended that
"[t]he question is whether [Virginia] is an appropriate
forum, and under the good cause analysis, [Virginia] is not
an appropriate forum , because everything that matters to
this case-the witnesses, the functions, the trust, the law,
the prior litigation that preceded this-it all took place in
New York." By contrast, the Funds argued that the loans
that form the basis for the misconduct allegations arise out
of Virginia, New York, and multiple states, and many of the
defective loans were made to Virginia borrowers.
end of the hearing, the circuit court commented that it was
counterintuitive to think that a "multibillion-dollar
international banking institution" that "elected to
have its office here in Fairfax" could then be
inconvenienced by litigation in Fairfax. The court reasoned,
"I don't think you can set up business here in
Fairfax, which I suspect is probably business-friendly, and
then when you're sued say, oh, you can't sue us here;
come up to New York where it takes years to try the
case." The court concluded that the Fairfax County
Circuit Court was a proper and convenient forum, and denied
the motion to dismiss for forum non conveniens on July 21,
to Dismiss Pursuant to Forum Selection Clauses
June 2017 through February 2018, the litigation of the case
continued. In addition to the motion to dismiss for forum non
conveniens, HSBC filed and argued demurrers, a plea in bar, a
motion craving oyer, motions for the admission of counsel,
several discovery motions, and a motion for leave to file a
third-party complaint. It also asked for a judge to be
assigned to the case, requested a jury trial, and agreed to a
trial date. Over the eight months, HSBC filed an answer and a
third-party complaint, and the circuit court held multiple
hearings and either granted or denied HSBC's various
requests for relief.
November 3, 2017, the circuit court sustained HSBC's
demurrer to the good faith and fair dealing claim and granted
the Funds leave solely to amend the good faith and fair
dealing claim in the complaint. On November 27, 2017, the
Funds filed an amended complaint.
response, on December 18, 2017, HSBC filed another demurrer
and an answer. It also filed a motion to dismiss, arguing
that forum selection clauses in the CIAs designated ...