Court Opinion

ID: 9389790
Source: CourtListenerOpinion
Date Created: 2023-04-26 15:00:42.43628+00
Date Added: 2024-06-11T17:18:29.722092
License: Public Domain

22-239; 22-243; 22-503
Phx. Light SF Ltd. v. Bank of N.Y. Mellon; Phx. Light SF DAC v. Bank of N.Y. Mellon; Phx. Light SF Ltd. v. Deutsche Bank Nat’l Tr. Co.

                               United States Court of Appeals
                                  For the Second Circuit

                                                      August Term 2022
                                                 Argued: April 12, 2023
                                                 Decided: April 26, 2023
                                              Nos. 22-239, 22-243, 22-503

             PHOENIX LIGHT SF LIMITED, in its own right and the right of BLUE
           HERON FUNDING V LTD., BLUE HERON FUNDING VI LTD., BLUE HERON
           FUNDING VII LTD., BLUE HERON FUNDING IX LTD., KLEROS PREFERRED
               FUNDING V PLC, SILVER ELMS CDO PLC, SILVER ELMS CDO II
           LIMITED, C-BASS CBO XVII LTD., C-BASS CBO XIV LTD., and each of
            BLUE HERON FUNDING V. LTD., BLUE HERON FUNDING VI LTD., BLUE
             HERON FUNDING VII LTD., BLUE HERON FUNDING IX LTD., KLEROS
             PREFERRED FUNDING V PLC, SILVER ELMS CDO PLC, SILVER ELMS
             CDO II LIMITED, in their own right, C-BASS CBO XVII LTD., BLUE
             HERON FUNDING V LTD., BLUE HERON FUNDING VI LTD., KLEROS
             PREFERRED FUNDING V PLC, BLUE HERON FUNDING IX LTD., BLUE
                    HERON FUNDING VII LTD., SILVER ELMS CDO PLC,
                                                    Plaintiffs-Appellants,
                                                                    v.
                               THE BANK OF NEW YORK MELLON, as Trustee,
                                                     Defendant-Appellee. *

                               Appeal from the United States District Court
                                  for the Southern District of New York
                                 No. 14-cv-10104, Valerie Caproni, Judge.

*   The Clerk of Court is respectfully directed to amend the official case caption as set forth above.
    PHOENIX LIGHT SF DAC, KLEROS PREFERRED FUNDING V PLC,
                       Plaintiffs-Appellants,
                                 v.
                THE BANK OF NEW YORK MELLON,
                       Defendant-Appellee.

           Appeal from the United States District Court
             for the Southern District of New York
             No. 18-cv-1194, Valerie Caproni, Judge.

 PHOENIX LIGHT SF LIMITED, in its own right and the right of BLUE
HERON FUNDING IX LTD., C-BASS CBO XIV LTD., C-BASS CBO XVII
 LTD., KLEROS PREFERRED FUNDING V PLC, SILVER ELMS CDO PLC,
 SILVER ELMS CDO II LIMITED, BLUE HERON FUNDING IX LTD., BLUE
HERON FUNDING V LTD., BLUE HERON FUNDING VI LTD., BLUE HERON
                       FUNDING VII LTD.,
                       Plaintiffs-Appellants,
                                 v.
      DEUTSCHE BANK NATIONAL TRUST COMPANY, DEUTSCHE
               BANK TRUST COMPANY AMERICAS,
                      Defendants-Appellees.

           Appeal from the United States District Court
             for the Southern District of New York
             No. 14-cv-10103, John G. Koeltl, Judge.

Before:    SULLIVAN, MERRIAM, and KAHN, Circuit Judges.

                                 2
       Plaintiffs – issuers of collateralized debt obligations secured by certificates
in residential-mortgage-backed securities trusts – appeal from three separate
judgments dismissing actions brought against The Bank of New York Mellon,
Deutsche Bank National Trust Company, and Deutsche Bank Trust Company
Americas. In each case, the district courts (Caproni and Koeltl, JJ.) assumed that
Plaintiffs had Article III standing, but found that Plaintiffs were precluded from
relitigating the issue of prudential standing due to a prior case Plaintiffs had
brought against U.S. Bank National Association. See Phx. Light SF DAC v. U.S.
Bank Nat’l Ass’n, No. 20-1312, 2021 WL 4515256 (2d Cir. Oct. 4, 2021), cert. denied,
142 S. Ct. 1371 (2022). In resolving an issue of first impression in this Circuit, we
join the Ninth Circuit in concluding that the district courts permissibly bypassed
the question of Article III standing to address issue preclusion, which offered a
threshold, non-merits basis for dismissal. See Snoqualmie Indian Tribe v.
Washington, 8 F.4th 853 (9th Cir. 2021), cert. denied, 142 S. Ct. 2651 (2022). We also
conclude that the district courts’ application of issue preclusion was correct. We
therefore AFFIRM the orders of the district courts in all three appeals.

      AFFIRMED.

                                    WILLIAM A. MAHER (Steven S. Fitzgerald,
                                    David H. Wollmuth, on the brief), Wollmuth
                                    Maher & Deutsch LLP, New York, NY, for
                                    Plaintiffs-Appellants.

                                    CHARLES A. ROTHFELD, Mayer Brown LLP,
                                    Washington, DC (Christopher J. Houpt,
                                    Matthew D. Ingber, Mayer Brown LLP, New
                                    York, NY; Minh Nguyen-Dang, Mayer Brown
                                    LLP, Washington, DC, on the brief), for
                                    Defendant-Appellee The Bank of New York Mellon.

                                    WILLIAM R. PETERSON, Morgan, Lewis &
                                    Bockius LLP, Houston, TX (Kevin J. Biron,
                                    Bryan P. Goff, Michael S. Kraut, Morgan, Lewis
                                    & Bockius LLP, New York, NY, on the brief), for
                                    Defendants-Appellees Deutsche Bank National
                                    Trust Company, Deutsche Bank Trust Company
                                    Americas.
                                          3
RICHARD J. SULLIVAN, Circuit Judge:

      Plaintiffs – issuers of collateralized debt obligations (“CDOs”) secured by

certificates in residential-mortgage-backed securities (“RMBS”) trusts – appeal

from three separate judgments dismissing actions brought against The Bank of

New York Mellon (“BNY Mellon”) and Deutsche Bank National Trust Company

and Deutsche Bank Trust Company Americas (together, “Deutsche Bank”), which

served as either trustee or master servicer of the RMBS trusts. In each case, the

district courts (Caproni and Koeltl, JJ.) assumed that Plaintiffs had Article III

standing, but found that Plaintiffs were precluded from relitigating the issue of

prudential standing due to a prior case Plaintiffs had brought against U.S. Bank

National Association (“U.S. Bank”). See Phx. Light SF DAC v. U.S. Bank Nat’l Ass’n,

No. 20-1312, 2021 WL 4515256 (2d Cir. Oct. 4, 2021), cert. denied, 142 S. Ct. 1371

(2022). In resolving an issue of first impression in this Circuit, we join the Ninth

Circuit in concluding that the district courts permissibly bypassed the question of

Article III standing to address issue preclusion, which offered a threshold, non-

merits basis for dismissal. See Snoqualmie Indian Tribe v. Washington, 8 F.4th 853

(9th Cir. 2021), cert. denied, 142 S. Ct. 2651 (2022). We also conclude that the district

                                           4
courts’ application of issue preclusion was correct. We therefore AFFIRM the

orders of the district courts in all three appeals.

                                  I.   BACKGROUND

      Plaintiffs are issuers of CDOs, meaning that they issued notes secured by a

portfolio of assets, including certificates in RMBS trusts. In 2014, seeking to

recover losses from their RMBS investments in the wake of the 2008 collapse of the

housing market, Plaintiffs brought various suits against RMBS trustees, including

U.S. Bank, BNY Mellon, and Deutsche Bank (the “U.S. Bank Action,” the “BNY

Mellon 2014 Action,” and the “Deutsche Bank Action,” respectively). However,

in 2015, the district court in the U.S. Bank Action granted the defendant’s motion

to dismiss under Federal Rule of Civil Procedure 12(b)(1). See Phx. Light SF Ltd. v.

U.S. Bank Nat’l Ass’n, No. 14-cv-10116 (KBF), 2015 WL 2359358, at *1 (S.D.N.Y. May

18, 2015). In particular, the district court found that Plaintiffs lacked standing

because, when they issued their CDO notes, they simultaneously conveyed all

right, title, and interest in the RMBS certificates – including the full power to file

actions regarding rights under the RMBS certificates – to other entities (the “CDO

Trustees”). See id. at *2–4.

                                           5
      Following that decision, the CDO Trustees assigned litigation rights

associated with the RMBS certificates back to Plaintiffs across all five lawsuits.

Plaintiffs amended their complaint accordingly in the U.S. Bank Action, and in

response, U.S. Bank included in its answer the affirmative defense of champerty,

signaling that it intended to assert that Plaintiffs still lacked standing because the

CDO Trustees’ assignment of litigation rights back to Plaintiffs was invalid under

New York law. See N.Y. Jud. Law § 489 (“No person or co-partnership . . . and no

corporation or association . . . shall solicit, buy or take an assignment of, or be in

any manner interested in buying or taking an assignment of a bond, promissory

note, bill of exchange, book debt, or other thing in action, or any claim or demand,

with the intent and for the purpose of bringing an action or proceeding

thereon[.]”).

      In 2020, after discovery was complete, the district court in the U.S. Bank

Action granted summary judgment in favor of U.S. Bank, agreeing that the CDO

Trustees’ assignments were champertous and, as a result, finding that Plaintiffs

lacked both Article III and prudential standing – i.e., finding that Plaintiffs neither

(1) suffered a concrete and particularized injury in fact, fairly traceable to the

challenged actions of U.S. Bank and likely redressable by a favorable judicial

                                          6
decision, nor (2) asserted their own legal rights and interests. See Phx. Light SF Ltd.

v. U.S. Bank Nat’l Ass’n, 612 F. Supp. 3d 263, 277–87 (S.D.N.Y. 2020), reconsideration

denied, No. 14-cv-10116 (VSB), 2020 WL 4699043 (S.D.N.Y. Aug. 12, 2020). A year

later, this Court affirmed on the ground that the assignments were champertous

and that Plaintiffs thus lacked prudential standing. See Phx. Light, 2021 WL

4515256, at *1–2. In so doing, we assumed but did not decide the issue of Article

III standing. See id. at *1.

       After we affirmed, the district court in the BNY Mellon 2014 Action – which

had been at the summary-judgment stage before being stayed pending the appeal

in the U.S. Bank Action – ordered the parties to brief the effect of our decision.

That same order also directed the parties to brief the effect on a related action

concerning BNY Mellon’s role as a master servicer of an RMBS trust (the “BNY

Mellon 2018 Action”), which had been severed from the BNY Mellon 2014 Action

and had been in discovery at the time of the stay. After the briefing, the district

court issued an order dismissing both actions, which “assume[d]” that Plaintiffs

had Article III standing, Phx. Light SF Ltd. v. Bank of N.Y. Mellon, No. 14-cv-10104

(VEC), 2022 WL 92213, at *2 n.6 (S.D.N.Y. Jan. 7, 2022), but found that Plaintiffs

were precluded from relitigating the issue of prudential standing by the U.S. Bank

                                          7
Action, see id. at *3–6. In the alternative, the district court found that Plaintiffs

lacked prudential standing “under a fresh analysis.” Id. at *5 n.15. About a month

later, the district court in the Deutsche Bank Action, which like the BNY Mellon

2014 Action was at the summary-judgment stage, arrived at the exact same

conclusions. See Phx. Light SF Ltd. v. Deutsche Bank Nat'l Tr. Co., 585 F. Supp. 3d

540, 559–63 & nn.15–16 (S.D.N.Y. 2022). 1

       Plaintiffs timely appealed.

                                       II.   DISCUSSION

       We review a district court’s grant of summary judgment de novo. See Garcia

v. Hartford Police Dep't, 706 F.3d 120, 126–27 (2d Cir. 2013). We also “generally

review de novo a district court’s ruling on” issue preclusion, also known as

collateral estoppel, because the doctrine “frequently turn[s] on pure questions of

law, or on the application of law to undisputed facts.” Hoblock v. Albany Cnty. Bd.

of Elections, 422 F.3d 77, 93 (2d Cir. 2005); see also United States v. U.S. Currency in

1In its summary-judgment order dismissing the Deutsche Bank Action for lack of prudential
standing based on issue preclusion, the district court also reached issues pertaining to the
underlying substance of Plaintiffs’ claims – as the district court in the BNY Mellon 2014 Action
previously had in a summary-judgment order in 2017. On appeal, Plaintiffs contend that the
district courts erred in granting summary judgment to Deutsche Bank and BNY Mellon on some
of these substantive issues as well, but because we affirm the dismissals based on issue preclusion
and prudential standing, we need not reach those questions.

                                                8
the Amount of $119,984.00, More or Less, 304 F.3d 165, 171–72 (2d Cir. 2002).

Applying the de-novo review standard, we conclude that the district courts

appropriately dismissed all three actions on appeal.

   A. Bypassing Jurisdiction

      As an initial matter, we reject Plaintiffs’ contention that the district courts

were obliged to address whether Plaintiffs had Article III standing before

determining that Plaintiffs lacked prudential standing. The parties strenuously

debate whether past cases holding that courts may assume Article III standing in

order to dismiss on prudential-standing grounds, such as Kowalski v. Tesmer, 543

U.S. 125 (2004), and Hillside Metro Associates v. JPMorgan Chase Bank, 747 F.3d 44

(2d Cir. 2014), are still good law in light of more recent cases, such as Lexmark

International, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014), and SM Kids,

LLC v. Google LLC, 963 F.3d 206 (2d Cir. 2020). But we need not answer that

question today: even if we assume that the prudential-standing question at issue

here involved a merits determination that should not have been substantively

considered before Article III standing, the district courts were (and we are) still

permitted to bypass Article III standing to consider whether Plaintiffs were

collaterally estopped from relitigating the issue of prudential standing.

                                           9
       Despite the ordinary rule that courts must address questions pertaining to

constitutional jurisdiction first, see, e.g., Steel Co. v. Citizens for Better Env’t, 523 U.S.

83, 93–102 (1998), the Supreme Court has supplied courts with “leeway” to dismiss

actions based on non-jurisdictional, non-merits grounds, particularly where the

constitutional-jurisdiction question is “difficult to determine” and dismissing on

the threshold issue is “the less burdensome course.” Sinochem Int’l Co. v. Malay.

Int’l Shipping Corp., 549 U.S. 422, 431, 436 (2007); see also In re Facebook, Inc., Initial

Pub. Offering Derivative Litig., 797 F.3d 148, 155–59 (2d Cir. 2015). For example, in

Sinochem, the Supreme Court held that a district court had discretion to dismiss

under the doctrine of forum non conveniens before disposing of any other

threshold challenges, including to personal or subject-matter jurisdiction. See 549

U.S. at 430–36; see also, e.g., Ellis v. Dyson, 421 U.S. 426, 433–34 (1975) (holding that

dismissals based on abstention under Younger v. Harris, 401 U.S. 37 (1971), may be

resolved before addressing jurisdiction); Tenet v. Doe, 544 U.S. 1, 6 n.4 (2005)

(similarly holding that dismissals under Totten v. United States, 92 U.S. 105 (1876),

may be resolved before addressing jurisdiction).

       Joining the Ninth Circuit, we hold that issue preclusion, or collateral

estoppel, is another such non-merits threshold ground that is suitable for

                                             10
resolution before addressing a difficult or novel question of constitutional

jurisdiction. See Snoqualmie, 8 F.4th at 861–63. 2 As the Ninth Circuit explained,

issue preclusion is a non-merits inquiry because it “does not require the court to

assume substantive law-declaring power.” Id. at 862; see also Sinochem, 549 U.S. at

433 (characterizing this as “[t]he critical point”); United States ex rel. Hanks v. United

States, 961 F.3d 131, 137 (2d Cir. 2020) (same).                         Rather, “[j]ust as a

forum[-]non[-]conveniens dismissal is a determination that the merits should be

adjudicated by a different court, an issue[-]preclusion dismissal is a determination

that the merits (of at least one issue) have already been adjudicated by a different

court.” Snoqualmie, 8 F.4th at 862 (emphasis omitted). In other words, because

“jurisdiction is vital only if the court proposes to issue a judgment on the merits,”

Intec USA, LLC v. Engle, 467 F.3d 1038, 1041 (7th Cir. 2006), and an issue-preclusion

dismissal is not a judgment on the merits, courts are permitted to dismiss on the

basis of issue preclusion without reaching harder Article III standing questions.

2 Other courts have already so held for the related doctrine of claim preclusion. See Env't
Conservation Org. v. City of Dallas, 529 F.3d 519, 524–25 (5th Cir. 2008) (recognizing that claim
preclusion could be considered before the jurisdictional issue of mootness, but declining to do so
because the facts did not present “a textbook case for immediate res judicata dismissal” (internal
quotation marks omitted and alterations adopted)); Hoffman v. Nordic Nats., Inc., 837 F.3d 272,
277–78 (3d Cir. 2016) (holding that a court can assume subject-matter jurisdiction to dismiss on
claim-preclusion grounds, because doing so does “not technically [produce] a judgment on the
merits”); cf. also Comm’r of Internal Revenue v. Sunnen, 333 U.S. 591, 597 (1948) (noting that courts
may dispose of cases on res judicata grounds “without reaching the merits of the controversy”).

                                                 11
      And here, the district courts were faced with a thorny Article III standing

question. We appreciate that “[i]n the mine run of cases, jurisdiction will involve

no arduous inquiry.” Sinochem, 549 U.S. at 436 (internal quotation marks omitted).

But this is not a mine-run case. To the contrary, the constitutional-standing

inquiry presents a hotly debated question. Compare, e.g., Plaintiffs Br. at 26–31

(No. 22-239) (asserting that Article III jurisdiction is satisfied), with BNY Mellon Br.

at 41–46 (No. 22-239) (asserting Article III jurisdiction is not satisfied), and

Deutsche Bank Br. at 35–42 (No. 22-503) (same). As a result, we conclude that the

district courts were permitted to dismiss on the basis of issue preclusion without

assessing the question of constitutional jurisdiction – and that we are permitted to

affirm on that ground, as we do now. See Hoffman, 837 F.3d at 278 n.33.

   B. Issue Preclusion

      “Collateral estoppel, or issue preclusion, prevents parties or their privies

from relitigating in a subsequent action an issue of fact or law that was fully and

fairly litigated in a prior proceeding,” M.O.C.H.A. Soc’y, Inc. v. City of Buffalo, 689

F.3d 263, 284 (2d Cir. 2012), including issues of standing, see Mrazek v. Suffolk Cnty.

Bd. of Elections, 630 F.2d 890, 896 n.10 (2d Cir. 1980); see also Morabito v. New York,

803 F. App’x 463, 467 (2d Cir. 2020); Stengel v. Black, 486 F. App’x 181, 183 (2d Cir.

                                          12
2012). The preclusive effect of a judgment rendered by a federal court sitting in

diversity – as was the district court in the U.S. Bank Action – is determined by the

law of the state in which the rendering court sat – here, New York. See Semtek Int’l

Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001). “Under New York law,

collateral estoppel bars relitigation of an issue when (1) the identical issue

necessarily was decided in the prior action and is decisive of the present action,

and (2) the party to be precluded from relitigating the issue had a full and fair

opportunity to litigate the issue in the prior action.” Plymouth Venture Partners, II,

L.P. v. GTR Source, LLC, 988 F.3d 634, 642 (2d Cir. 2021) (internal quotation marks

omitted); see also In re Howard v. Stature Elec., Inc., 20 N.Y.3d 522, 525 (2013).

      Applying this framework, we agree with the district courts that the prior

determination of prudential standing in the U.S. Bank Action satisfied the

prerequisites for issue preclusion. More specifically, the district courts correctly

determined that the champerty-based prudential-standing issue in the BNY

Mellon 2014, BNY Mellon 2018, and Deutsche Bank Actions was decisive and

identical to the one decided in the U.S. Bank Action, because it was undisputed

below and on appeal that materially identical transactions with the CDO Trustees

were at issue in all the actions. Additionally, we cannot say that the district courts

                                           13
erred in determining that Plaintiffs had a full and fair opportunity to litigate the

champerty-based prudential-standing issue in the U.S. Bank Action. Although a

couple of the Plaintiffs did not participate in the U.S. Bank Action, the district

courts found that the absent parties were sufficiently in privity with parties who

did participate, see Buechel v. Bain, 97 N.Y.2d 295, 304–05 (2001) (describing New

York’s privity standard in issue-preclusion context) – a finding that Plaintiffs do

not challenge on appeal, see Norton v. Sam's Club, 145 F.3d 114, 117 (2d Cir. 1998)

(“Issues not sufficiently argued in the [appellate] briefs are considered [forfeited]

and normally will not be addressed on appeal.”).

      Plaintiffs’ arguments to the contrary are unavailing. First, in all three

appeals, Plaintiffs assert that the prudential-standing question decided in the U.S.

Bank Action was a pure legal question and thus could not have issue-preclusive

effect under New York law. See, e.g., Plymouth Venture, 988 F.3d at 642; Am. Home

Assurance Co. v. Int’l Ins. Co., 90 N.Y.2d 433, 440 (1997) (holding that because the

plaintiff’s arguments concerned “a pure question of law,” “the doctrine of

collateral estoppel does not preclude [the plaintiff] from litigating that issue

again”). But, in fact, the champerty-based prudential-standing determination in

the U.S. Bank Action was not a purely legal one. Under New York law, “the

                                         14
purpose behind the plaintiff’s acquisition of rights is the critical issue in assessing

whether such acquisition is champertous,” Justinian Cap. SPC v. WestLB AG, 28

N.Y.3d 160, 166–67 (2016) (internal quotation marks omitted and alterations

adopted), and “the question of intent and purpose of the purchaser or assignee of

a claim is usually a factual one,” Bluebird Partners, L.P. v. First Fid. Bank, N.A., 94

N.Y.2d 726, 738 (2000) (internal quotation marks omitted); see also Tr. for Certificate

Holders of Merrill Lynch Mortg. Invs., Inc. v. Love Funding Corp., 13 N.Y.3d 190, 195,

200 (2009). Applying this case law, the district court in the U.S. Bank Action rested

its champerty-based prudential-standing determination on factual findings

regarding the intent and purpose behind the CDO Trustees’ assignments, see Phx.

Light, 612 F. Supp. 3d at 281–86, as did we when affirming, see Phx. Light, 2021 WL

4515256, at *1–2 (“Based on the factual findings of the [d]istrict [c]ourt, it is clear

that the assignments made were indeed champertous[.]”). As such, New York’s

pure-legal-question exception to issue preclusion has no application here. See Am.

Home Assurance, 90 N.Y.2d at 440 n.1 (noting that “mixed question[s] of law and

fact” are subject to issue preclusion).

      Second, Plaintiffs assert that fairness and other equitable considerations

should have barred the application of issue preclusion in the BNY Mellon 2018

                                          15
Action and the Deutsche Bank Action. We disagree. For starters, Plaintiffs

forfeited these arguments in the BNY Mellon 2018 Action by failing to raise them

to the district court, and we decline to exercise our discretion to consider them

now for the first time on appeal. See Doe v. Trump Corp., 6 F.4th 400, 409–11 (2d

Cir. 2021).

      As to the Deutsche Bank Action, we recognize that under New York law,

“the question of fairness . . . in the application of the doctrine [of issue preclusion]

must be the crowning consideration.” Read v. Sacco, 375 N.Y.S.2d 371, 375 (2d

Dep’t 1975). Indeed, as an extension of the requirement that the party to be

precluded from relitigating had a full and fair opportunity to litigate the issue in

the prior action, “each case must be examined to determine whether, under all the

circumstances, the party said to be estopped was not unfairly or prejudicially

treated in the litigation in which the judgment sought to be enforced was

rendered.” Id. But instead of offering ways in which Plaintiffs were unfairly treated

in the U.S. Bank Action, Plaintiffs only suggest that it is generally unfair to invalidate

their assignments, as they had pursued those assignments based on the reasonable

assumption that ratification under Federal Rule of Civil Procedure 17(a)(3) was

unavailable. To the extent this is even a cognizable complaint within New York’s

                                           16
issue-preclusion rubric, Plaintiffs’ strategic miscalculations do not generate

unfairness; even prior to Fund Liquidation Holdings LLC v. Bank of America Corp.,

attempting ratification would not have been directly contrary to controlling

precedent in this Circuit. See 991 F.3d 370, 387 (2d Cir. 2021) (recognizing the issue

as “an open question”); FDIC v. Citibank N.A., No. 15-cv-6574 (ALC), 2017 U.S.

Dist. LEXIS 108104, at *8–9 (S.D.N.Y. July 10, 2017) (allowing parties to ratify to

cure standing defects prior to Fund Liquidation).

      Relatedly, Plaintiffs suggest that Deutsche Bank should have been

prevented from invoking the equitable doctrine of issue preclusion because it had

unclean hands. See PenneCom B.V. v. Merrill Lynch & Co., 372 F.3d 488, 493 (2d Cir.

2004) (“New York courts have long applied the maxim that one ‘who comes to

equity must come with clean hands.’” (quoting Amarant v. D’Antonio, 602 N.Y.S.2d

837, 838 (1st Dep’t 1993))). Granted, in its capacity as a CDO Trustee, Deutsche

Bank Trust Company Americas was a party to one of the champertous

assignments. This, however, does not render Deutsche Bank’s hands unclean – or

the application of issue preclusion unfair – as it is undisputed that Plaintiffs were

the ones who orchestrated the assignments. See id. (explaining that “one who has

                                         17
acted fraudulently, or who by deceit or any unfair means has gained an

advantage,” cannot invoke preclusion (internal quotation marks omitted)).

      Third, and finally, Plaintiffs assert that they should not have been precluded

from relitigating prudential standing in the BNY Mellon 2014 Action because in

that action BNY Mellon had neglected to plead, and thus waived, champerty as an

affirmative defense. See J. App’x at 707–11 (No. 22-239) (district court recognizing

the waiver). However, regardless of what BNY Mellon pleaded, the district court

was permitted to consider the affirmative defense of issue preclusion – even issue

preclusion of champerty-based prudential standing – in accordance with the

“strong public policy in economizing the use of judicial resources by avoiding

relitigation.” Curry v. City of Syracuse, 316 F.3d 324, 330–31 (2d Cir. 2003) (internal

quotation marks omitted) (holding that a court may, in its discretion, permit an

issue-preclusion defense to be raised for the first time on summary judgment); see

also Doe v. Pfrommer, 148 F.3d 73, 80 (2d Cir. 1998) (“Although the district court

raised the issue of collateral estoppel sua sponte, this decision does not require

reversal.”).

      The New York case law Plaintiffs cite is not to the contrary. Although New

York courts have commented that “the dismissal of a complaint as against one

                                          18
party need not be given res judicata effect as against another . . . when the

dismissal was based upon a defense that was personal to that party,” Raab v.

Kaleida Health, 875 N.Y.S.2d 411, 412 (4th Dep’t 2009), the champerty-based

prudential-standing defense was not personal to U.S. Bank. Rather, putting aside

the pleading defect, the defense was equally available to BNY Mellon, given that

Plaintiffs had executed virtually identical agreements with the relevant CDO

Trustees in both the BNY Mellon 2014 and U.S. Bank Actions. Thus, the fact that

BNY Mellon did not assert the champerty defense in its answer did not prevent

the district court from exercising its discretion to consider the defense as part of its

issue-preclusion and prudential-standing analysis, particularly since Plaintiffs had

ample notice of BNY Mellon’s issue-preclusion arguments and an opportunity to

respond. See Curry, 316 F.3d at 331. 3

       In short, we fully agree with the district courts that Plaintiffs were not

entitled to a second bite at the prudential-standing apple after the U.S. Bank

Action. The district courts therefore did not err in taking this straightforward, if

not “textbook,” path to dismissal. Sinochem, 549 U.S. at 435.

3Equally meritless is Plaintiffs’ related contention that the issue-preclusion dismissal in the BNY
Mellon 2018 Action was improper because no formal summary-judgment motion was filed. The
district court did not need to abide by the strictures of Federal Rule of Civil Procedure 56 to
dismiss for issue preclusion. See Pfrommer, 148 F.3d at 80; Hoffman, 837 F.3d at 280.

                                                19
                            III.   CONCLUSION

      For the reasons stated above, we AFFIRM the judgments of the district

courts.

                                    20