| NEW YORK, April 1
NEW YORK, April 1 Wells Fargo & Co
failed to persuade a U.S. judge to dismiss a lawsuit accusing it
of mismanaging a collateralized debt obligation vehicle created
by WestLB AG, a state-owned German bank that was dissolved after
the 2008 financial crisis.
While dismissing several claims, U.S. District Judge Richard
Sullivan in Manhattan said Wells Fargo must face claims by House
of Europe Funding I Ltd, a Cayman Islands-based CDO issuer, that
its oversight led to losses that could reach $163 million. The
decision was made public on Tuesday, and is dated March 31.
Created by WestLB in 2003, House of Europe accused Wells
Fargo, as trustee and collateral administrator, and Collineo
Asset Management GmbH, a German asset manager, of taking too
much risk by allowing it to invest excessively in other kinds of
CDOs at least six times from April 2006 to July 2007.
According to the complaint, most of the disputed assets have
defaulted, causing $143 million of losses and $20 million of
expected future losses for House of Europe and its investors.
Erste Abwicklungsanstalt (EAA), a German agency created to wind
down WestLB, was also a plaintiff.
Sullivan ruled that House of Europe's allegations sufficed
to allow a breach of contract claim against Wells Fargo.
He also said that allegations that Wells Fargo concealed the
true nature of the investments by misreporting them supported an
inference at this stage of the case that the San Francisco-based
bank might have acted with "gross negligence."
Sullivan also allowed House of Europe to pursue part of its
case against Collineo, and dismissed much of EAA's case. The
lawsuit was filed in January 2013.
Jonathan Pickhardt, a partner at Quinn Emanuel Urquhart &
Sullivan representing House of Europe and EAA, said: "We are
pleased that the court upheld our central claim seeking to hold
Wells Fargo responsible for its repeated breaches of provisions
intended to protect House of Europe I and its investors."
Wells Fargo spokesman Ancel Martinez declined to comment.
The bank is the fourth-largest in the United States by assets.
Demian Ordway, a lawyer at Holwell Shuster & Goldberg
representing Collineo, said: "We're very happy with the result,
and are confident that HOE's remaining claim against Collineo
will ultimately be dismissed."
WestLB ceased operations in 2012.
The case is House of Europe Funding I Ltd et al v. Wells
Fargo Bank NA et al, U.S. District Court, Southern District of
New York, No. 13-00519.
(Reporting by Jonathan Stempel in New York; editing by Andrew