BlackRock v. U.S. Bank | DERIVATIVE COMPLAINT AGAINST U.S. BANK NATIONAL ASSOCIATION FOR BREACH OF CONTRACT; VIOLATION OF THE TRUST INDENTURE ACT OF 1939; BREACH OF FIDUCIARY DUTY; BREACH OF DUTY OF INDEPENDENCE; AND NEGLIGENCE

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BlackRock v. U.S. Bank | DERIVATIVE COMPLAINT AGAINST U.S. BANK NA FOR BREACH OF CONTRACT; VIOLATION OF THE TRUST INDENTURE ACT OF 1939; BREACH OF FIDUCIARY DUTY; BREACH OF DUTY OF INDEPENDENCE; AND NEGLIGENCE

BlackRock v. U.S. Bank | DERIVATIVE COMPLAINT AGAINST U.S. BANK NA FOR BREACH OF CONTRACT; VIOLATION OF THE TRUST INDENTURE ACT OF 1939; BREACH OF FIDUCIARY DUTY; BREACH OF DUTY OF INDEPENDENCE; AND NEGLIGENCE

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK

BLACKROCK ALLOCATION TARGET SHARES: SERIES S PORTFOLIO; BLACKROCK BALANCED CAPITAL PORTFOLIO (FI); BLACKROCK CORE ACTIVE BOND FUND B; BLACKROCK CORE ACTIVE LIBOR FUND B; BLACKROCK CORE BOND PORTFOLIO; BLACKROCK CORE BOND TRUST; BLACKROCK COREALPHA BOND FUND E; BLACKROCK COREALPHA BOND MASTER PORTFOLIO; BLACKROCK COREPLUS BOND FUND B; BLACKROCK ENHANCED GOVERNMENT FUND, INC.; BLACKROCK FIXED INCOME GLOBALALPHA MASTER FUND LTD.; BLACKROCK FIXED INCOME VALUE OPPORTUNITIES; BLACKROCK FUNDS II, INFLATION PROTECTED BOND PORTFOLIO; BLACKROCK INCOME OPPORTUNITY TRUST; BLACKROCK INCOME TRUST, INC.; BLACKROCK LIMITED DURATION INCOME TRUST; BLACKROCK LOW DURATION BOND PORTFOLIO; BLACKROCK MANAGED VOLATILITY V.I. FUND (FI); BLACKROCK MULTI-ASSET INCOME – NON-AGENCY MBS PORTFOLIO; BLACKROCK MULTI-SECTOR INCOME TRUST; BLACKROCK SECURED CREDIT PORTFOLIO; BLACKROCK STRATEGIC INCOME OPPORTUNITIES PORTFOLIO; BLACKROCK TOTAL RETURN PORTFOLIO (INS – SERIES); BLACKROCK TOTAL RETURN V.I. PORTFOLIO (INS – VAR SER); BLACKROCK US MORTGAGE;
BLACKROCK WORLD INCOME FUND, INC.; FIXED INCOME SHARES (SERIES R); FIXED INCOME SHARES: SERIES C; FIXED INCOME SHARES: SERIES LD; FIXED INCOME SHARES: SERIES M; LVS I LLC; LVS I SPE XIV LLC; LVS II LLC; PARS ASPIRE FUND; PCM FUND, INC.; PIMCO ABSOLUTE RETURN STRATEGY 3D OFFSHORE FUND LTD.; PIMCO ABSOLUTE RETURN STRATEGY II MASTER FUND LDC; PIMCO ABSOLUTE RETURN STRATEGY III MASTER FUND LDC; PIMCO ABSOLUTE RETURN STRATEGY III OVERLAY MASTER FUND LTD.; PIMCO ABSOLUTE RETURN STRATEGY IV IDF LLC; PIMCO ABSOLUTE RETURN STRATEGY IV MASTER FUND LDC; PIMCO ABSOLUTE RETURN STRATEGY V MASTER FUND LDC; PIMCO CANADA CANADIAN COREPLUS BOND TRUST; PIMCO CANADA CANADIAN COREPLUS LONG BOND TRUST; PIMCO CANADA CANADIAN TACTICAL BOND TRUST; PIMCO CANADIAN TOTAL RETURN BOND FUND; PIMCO COMBINED ALPHA STRATEGIES MASTER FUND LDC; PIMCO CORPORATE & INCOME OPPORTUNITY FUND; PIMCO CORPORATE & INCOME STRATEGY FUND; PIMCO DISTRESSED SENIOR CREDIT OPPORTUNITIES FUND II, L.P.; PIMCO DYNAMIC CREDIT INCOME FUND; PIMCO DYNAMIC INCOME FUND; PIMCO EQUITY SERIES: PIMCO BALANCED INCOME FUND; PIMCO ETF TRUST: PIMCO LOW DURATION EXCHANGE-TRADED FUND; PIMCO ETF TRUST: PIMCO TOTAL RETURN EXCHANGE-TRADED FUND; PIMCO FUNDS: PIMCO EM FUNDAMENTAL INDEXPLUS® AR STRATEGY FUND; PIMCO FUNDS: PIMCO INTERNATIONAL FUNDAMENTAL INDEXPLUS® AR STRATEGY FUND; PIMCO FUNDS: PIMCO SMALL COMPANY FUNDAMENTAL INDEXPLUS® AR STRATEGY FUND; PIMCO FUNDS: PIMCO COMMODITIESPLUS® STRATEGY FUND; PIMCO FUNDS: PIMCO COMMODITY REAL RETURN STRATEGY FUND®; PIMCO FUNDS: PIMCO CREDIT ABSOLUTE RETURN FUND; PIMCO FUNDS: PIMCO DIVERSIFIED INCOME FUND; PIMCO FUNDS: PIMCO EMERGING LOCAL BOND FUND; PIMCO FUNDS: PIMCO EMERGING MARKETS BOND FUND; PIMCO FUNDS: PIMCO EMERGING MARKETS CURRENCY FUND; PIMCO FUNDS: PIMCO EMG INTL LOW VOLATILITY RAFI®-PLUS AR FUND; PIMCO FUNDS: PIMCO EXTENDED DURATION FUND; PIMCO FUNDS: PIMCO FLOATING INCOME FUND; PIMCO FUNDS: PIMCO FOREIGN BOND FUND (U.S. DOLLAR-HEDGED); PIMCO FUNDS: PIMCO FOREIGN BOND FUND (UNHEDGED); PIMCO FUNDS: PIMCO FUNDAMENTAL ADVANTAGE ABSOLUTE RETURN STRATEGY FUND; PIMCO FUNDS: PIMCO FUNDAMENTAL INDEXPLUS® AR FUND; PIMCO FUNDS: PIMCO GLOBAL ADVANTAGE® STRATEGY BOND FUND; PIMCO FUNDS: PIMCO GLOBAL BOND FUND (U.S. DOLLAR-HEDGED); PIMCO FUNDS: PIMCO GLOBAL BOND FUND (UNHEDGED); PIMCO FUNDS: PIMCO GLOBAL MULTI-ASSET FUND; PIMCO FUNDS: PIMCO GNMA FUND; PIMCO FUNDS: PIMCO HIGH YIELD FUND; PIMCO FUNDS: PIMCO INCOME FUND; PIMCO FUNDS: PIMCO INFLATION RESPONSE MULTI-ASSET FUND; PIMCO FUNDS: PIMCO INTERNATIONAL STOCKSPLUS® AR STRATEGY FUND (U.S. DOLLAR-HEDGED); PIMCO FUNDS: PIMCO INTERNATIONAL STOCKSPLUS® AR STRATEGY FUND (UNHEDGED); PIMCO FUNDS: PIMCO INVESTMENT GRADE CORPORATE BOND FUND; PIMCO FUNDS: PIMCO LONG DURATION TOTAL RETURN FUND; PIMCO FUNDS: PIMCO LONG-TERM CREDIT FUND; PIMCO FUNDS: PIMCO LONG-TERM U.S. GOVERNMENT FUND; PIMCO FUNDS: PIMCO LOW DURATION FUND; PIMCO FUNDS: PIMCO LOW DURATION FUND II; PIMCO FUNDS: PIMCO LOW DURATION FUND III; PIMCO FUNDS: PIMCO MODERATE DURATION FUND; PIMCO FUNDS: PIMCO MORTGAGE OPPORTUNITIES FUND; PIMCO FUNDS: PIMCO MORTGAGE-BACKED SECURITIES FUND; PIMCO FUNDS: PIMCO REAL ESTATE REAL RETURN STRATEGY FUND; PIMCO FUNDS: PIMCO REAL RETURN ASSET FUND; PIMCO FUNDS: PIMCO REAL RETURN FUND; PIMCO FUNDS: PIMCO SHORT-TERM FUND; PIMCO FUNDS: PIMCO SMALL CAP STOCKSPLUS® AR STRATEGY FUND; PIMCO FUNDS: PIMCO STOCKSPLUS® ABSOLUTE RETURN FUND; PIMCO FUNDS: PIMCO STOCKSPLUS® AR SHORT STRATEGY FUND; PIMCO FUNDS: PIMCO STOCKSPLUS® FUND; PIMCO FUNDS: PIMCO STOCKSPLUS® LONG DURATION FUND; PIMCO FUNDS: PIMCO TOTAL RETURN FUND; PIMCO FUNDS: PIMCO TOTAL RETURN FUND II; PIMCO FUNDS: PIMCO TOTAL RETURN FUND III; PIMCO FUNDS: PIMCO TOTAL RETURN FUND IV; PIMCO FUNDS: PIMCO UNCONSTRAINED BOND FUND; PIMCO FUNDS: PIMCO UNCONSTRAINED TAX MANAGED BOND FUND; PIMCO FUNDS: PIMCO WORLDWIDE FUNDAMENTAL ADVANTAGE AR STRATEGY FUND; PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES ASSET-BACKED SECURITIES PORTFOLIO; PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES DEVELOPING LOCAL MARKETS PORTFOLIO; PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES EMERGING MARKETS PORTFOLIO; PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES HIGH YIELD PORTFOLIO; PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES INTERNATIONAL PORTFOLIO; PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES LONG DURATION CORPORATE BOND PORTFOLIO; PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES MORTGAGE PORTFOLIO; PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES REAL RETURN PORTFOLIO; PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES SHORT-TERM PORTFOLIO; PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES U.S. GOVERNMENT SECTOR PORTFOLIO; PIMCO GLOBAL ADVANTAGE STRATEGY BOND FUND (CANADA); PIMCO GLOBAL CREDIT OPPORTUNITY MASTER FUND LDC; PIMCO GLOBAL INCOME OPPORTUNITIES FUND; PIMCO GLOBAL STOCKSPLUS & INCOME FUND; PIMCO HIGH INCOME FUND; PIMCO INCOME OPPORTUNITY FUND; PIMCO INCOME STRATEGY FUND; PIMCO INCOME STRATEGY FUND II; PIMCO LARGE CAP STOCKSPLUS ABSOLUTE RETURN FUND; PIMCO MONTHLY INCOME FUND (CANADA); PIMCO OFFSHORE FUNDS – PIMCO ABSOLUTE RETURN STRATEGY IV EFUND; PIMCO OFFSHORE FUNDS: PIMCO OFFSHORE FUNDS – PIMCO ABSOLUTE RETURN STRATEGY V ALPHA FUND; PIMCO STRATEGIC GLOBAL GOVERNMENT FUND, INC.; PIMCO TACTICAL OPPORTUNITIES MASTER FUND LTD.; PIMCO VARIABLE INSURANCE TRUST: PIMCO COMMODITYREALRETURN STRATEGY PORTFOLIO; PIMCO VARIABLE INSURANCE TRUST: PIMCO EMERGING MARKETS BOND PORTFOLIO; PIMCO VARIABLE INSURANCE TRUST: PIMCO FOREIGN BOND PORTFOLIO (U.S. DOLLAR HEDGED); PIMCO VARIABLE INSURANCE TRUST: PIMCO FOREIGN BOND PORTFOLIO (UNHEDGED); PIMCO VARIABLE INSURANCE TRUST: PIMCO GLOBAL ADVANTAGE STRATEGY BOND PORTFOLIO; PIMCO VARIABLE INSURANCE TRUST: PIMCO GLOBAL BOND PORTFOLIO (UNHEDGED); PIMCO VARIABLE INSURANCE TRUST: PIMCO HIGH YIELD PORTFOLIO; PIMCO VARIABLE INSURANCE TRUST: PIMCO LONG TERM U.S. GOVERNMENT PORTFOLIO; PIMCO VARIABLE INSURANCE TRUST: PIMCO LOW DURATION PORTFOLIO; PIMCO VARIABLE INSURANCE TRUST: PIMCO REAL RETURN PORTFOLIO; PIMCO VARIABLE INSURANCE TRUST: PIMCO SHORT-TERM PORTFOLIO; PIMCO VARIABLE INSURANCE TRUST: PIMCO TOTAL RETURN PORTFOLIO; PIMCO VARIABLE INSURANCE TRUST: PIMCO UNCONSTRAINED BOND PORTFOLIO; PIMCO VARIABLE INSURANCE TRUST: PIMCO GLOBAL MULTI-ASSET MANAGED ALLOCATION PORTFOLIO; PIMCO VARIABLE INSURANCE TRUST: PIMCO GLOBAL MULTI-ASSET MANAGED VOLATILITY PORTFOLIO; TERLINGUA FUND 2, LP; CREF BOND MARKET ACCOUNT; CREF SOCIAL CHOICE ACCOUNT; TIAA GLOBAL PUBLIC INVESTMENTS, MBS LLC; TIAA-CREF BOND FUND; TIAA-CREF BOND PLUS FUND; TIAA-CREF LIFE BOND FUND; TIAA-CREF LIFE INSURANCE COMPANY; TIAA-CREF SHORT-TERM BOND FUND; TIAA-CREF SOCIAL CHOICE BOND FUND; PRUDENTIAL BANK & TRUST; PRUDENTIAL RETIREMENT INSURANCE AND ANNUITY COMPANY; PRUDENTIAL TRUST COMPANY; THE GIBRALTAR LIFE INSURANCE COMPANY LTD.; THE PRUDENTIAL INSURANCE COMPANY OF AMERICA; THE PRUDENTIAL INVESTMENT PORTFOLIOS 2; THE PRUDENTIAL INVESTMENT PORTFOLIOS 9; THE PRUDENTIAL INVESTMENT PORTFOLIOS INC.; THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC. 17; THE PRUDENTIAL SERIES FUND; BROOKFIELD HIGH INCOME FUND INC.; BROOKFIELD MORTGAGE OPPORTUNITY INCOME FUND INC.; BROOKFIELD SECURITIZED CREDIT QIF FUND; BROOKFIELD TOTAL RETURN FUND INC.; CRYSTAL RIVER CAPITAL INC.; MILLERTON ABS CDO LTD.; GLOBAL PREFERRED RE LIMITED; LIICA HOLDINGS, LLC; LIICA RE I, INC.; LIICA RE II, INC.; MONUMENTAL LIFE INSURANCE COMPANY; STONEBRIDGE CASUALTY INSURANCE COMPANY; STONEBRIDGE LIFE INSURANCE COMPANY; STONEBRIDGE REINSURANCE COMPANY; TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY; TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY OF NEW YORK; TRANSAMERICA FINANCIAL LIFE INSURANCE COMPANY; TRANSAMERICA INTERNATIONAL RE (BERMUDA) LTD.; TRANSAMERICA LIFE (BERMUDA) LTD.; TRANSAMERICA LIFE INSURANCE COMPANY; TRANSAMERICA LIFE INTERNATIONAL (BERMUDA) LTD.; WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO; KORE ADVISORS LP; SEALINK FUNDING LIMITED; DZ BANK AG, derivatively, on behalf of the Trusts Identified in Exhibit 1
Plaintiffs,

-against-

U.S. BANK NATIONAL ASSOCIATION,
Defendant,

-and-

The Trusts Identified in Exhibit 1,
Nominal Defendants.

I. NATURE AND SUMMARY OF THE ACTION

1. Defendant U.S. Bank is a national banking association and is the Trustee for over a thousand RMBS trusts originally securitized by more than $1.3 trillion of residential mortgage loans. Among them are the Trusts at issue in this action: 841 private-label RMBS Trusts securitized between 2004 and 2008 collateralized with loans worth approximately $771 billion at the time of securitization. U.S. Bank, as Trustee, is the sole gatekeeper for the protection of the Trusts and their beneficial certificateholders (the “Certificateholders”), and must at all times act in the best interests of the Trusts. As alleged herein, U.S. Bank wholly failed to discharge its duties and obligations to protect the Trusts. Instead, to protect its own business interests, U.S. Bank ignored pervasive and systemic deficiencies in the underlying loan pools and the servicing of those loans and unreasonably refused to take any action. This derivative action seeks to recover billions of dollars in damages to the Trusts caused by U.S. Bank’s abdication of responsibility.

2. RMBS trusts are created to facilitate the securitization and sale of residential mortgage loans to investors. The trust’s assets consist entirely of the underlying loans, and the principal and interest (“P&I”) payments on the loans are “passed through” to the certificateholders. Between 2004 and 2008, a handful of large investment banks dominated the RMBS market and controlled the process from beginning to end. These banks act as “sponsors” of the RMBS, acquiring the mortgage loans from originators, who often were affiliates of the sponsors, or beholden to them through warehouse lending or other financial arrangements. Once the loans are originated, acquired and selected for securitization, the sponsor creates a trust where the loans are deposited for the benefit of the Certificateholders. The sponsor also hand-picks the servicer, often an affiliate of the sponsor or originator, to collect payments on the loans. Finally, a select number of these same banks that originate, securitize and service RMBS also act as trustees on other sponsor’s deals.

3. To ensure the quality of the RMBS and the underlying loans, the Trust documents generally include representations and warranties from the loan sellers attesting to the quality and characteristics of the mortgages as well as an agreement to cure, substitute, or repurchase mortgages that do not comply with those representations and warranties. Because the risk of non-payment or default on the loans is “passed through” to investors, other than these representations and warranties, the large investment banks and other players in the mortgage securitization industry have no “skin” in the game once the RMBS are sold to certificateholders. Instead, their profits are principally derived from the spread between the cost to originate or purchase loans, how much they can sell them to investors once packaged as securities, as well as various servicing-related income. Accordingly, volume became the focus, and the quality of the loans was disregarded.

[…]

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