Wells Fargo, Ocwen defend against ERISA claims on appeal

A pair of mortgage servicers asked an appellate court to affirm a ruling against pension fund investors that claimed the companies breached fiduciary duties under the Employee Retirement Income Security Act.

"The mortgages are not plan assets. Defendants are not ERISA fiduciaries," Ocwen Financial and Wells Fargo claimed in a response brief Bloomberg Law reported on earlier. The mortgage companies filed that brief late last week in the 2nd U.S. Circuit Court of Appeals.

Both companies declined to comment beyond what was in the public filing.

The escalating case could set a new precedent if it established fiduciary duties for entities that manage mortgages in securitization trusts for pension fund investors. Wells was the master servicer for securitized assets. Ocwen was the servicer.

Plaintiffs cite a letter from an Ocwen attorney in their appeal that indicates that some servicing agreements provide "broad discretion to determine an appropriate course of action when loans are in default or for which default is reasonably foreseeable," according to court documents.

Those agreements have "almost no prohibitory language circumscribing servicer loss mitigation," according to quoted excerpts of the letter in the documentation.

Defendants called reliance on that letter "misplaced" in their response brief, noting that it refers to "certain servicing agreements" but "not the servicing agreements for the trusts in this case."

"That quoted language says nothing about the numerous statutory and regulatory limitations on Ocwen's conduct," they added.

In the earlier decision, a federal judge in New York had restricted broader claims previously asserted in the case to narrower items such as the question of whether the real estate mortgage investment conduit securities involved were plan assets.

The judge in that case determined that the answer to that question was based on whether or not plaintiffs could prove that the assets involved were equity rather than debt.

This appears to stem from language around tax-related definitions around REMIC residual interests which may be open to interpretation on that count.

The defendants argued that previous findings on that count should be upheld and the aforementioned argument was not pertinent to the case at hand.

"As the district court correctly recognized, the securities here were debt, not equity," the response brief read.