                                                               NOT PRECEDENTIAL

                      UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT
                              ________________

                                    No. 18-2312
                                 ________________

                    IKB INTERNATIONAL S.A., In Liquidation;
                     IKB DEUTSCHE INDUSTRIEBANK AG,
                                                Appellants

                                          v.

 WILMINGTON TRUST COMPANY; M&T BANK CORP, as Successor by Merger to
the Wilmington Trust Company, as Trustee (and any predecessors or successors thereto);
CWABS TRUST 2005 HYB9; IMPAC SECURED ASSETS CORP MORTGAGE PASS
 THROUGH CERTIFICATES SERIES 2004-3; IMPAC CMP TRUST SERIES 2004-5;
IMPAC CMB TRUST SERIES 2005-5; IMPAC CMB TRUST SERIES 2005-6; IMPAC
CMB TRUST SERIES 2005-8; RENAISSANCE HOME EQUITY LOAN TRUST 2005-
 1; RENAISSANCE HOME EQUITY LOAN TRUST 2005-4; RENAISSANCE HOME
  EQUITY LOAN TRUST 2006-1; RENAISSANCE HOME EQUITY LOAN TRUST
  2006-2; RENAISSANCE HOME EQUITY LOAN TRUST 2006-3; RENAISSANCE
  HOME EQUITY LOAN TRUST 2006-4; RENAISSANCE HOME EQUITY LOAN
  TRUST 2007-1; RENAISSANCE HOME EQUITY LOAN TRUST 2007-2; SAXON
                       ASSET SECURITIES TRUST 2006-3
                               ________________

                   On Appeal from the United States District Court
                             For the District of Delaware
                          (D.C. Civil No. 1-17-cv-01351)
                    District Judge: Honorable John E. Jones, III
                                 ________________

                  Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
                                 February 5, 2019

           Before: HARDIMAN, SCIRICA, and RENDELL, Circuit Judges

                                (Filed: May 21, 2019)
                                    ________________

                                        OPINION *
                                    ________________


SCIRICA, Circuit Judge

       This appeal involves a contract dispute arising from investments that proved

calamitous. Plaintiff-Appellants IKB International S.A. and IKB International A.G. are

European commercial banks that invested $168 million in residential mortgage-backed

securities (RMBS) issued by securitization trusts organized under the Delaware Statutory

Trust Act. These investments became worthless in the wake of widespread loan defaults.

Plaintiffs sued Wilmington Trust Company (WTC), one of the trustees, to recoup their

losses. The documents governing the trusts, however, define a limited role and

circumscribed set of duties for WTC. While the Complaint details a bevy of abusive and

negligent conduct by sellers, servicers, and managers that may have harmed Plaintiffs’

investments, it fails to show that WTC breached any duties it owed under the contracts.

We will affirm the trial court’s dismissal of Plaintiffs’ claims.

                                              I.

                                              A.

       Plaintiffs sued under contracts governing their RMBS investments. The

securitization process generally begins when the mortgage lender—the “Seller”—sells



*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.


                                              2
loans in bulk to an investment bank—the “Sponsor,” often an affiliate of the Seller. The

Seller makes representations and warranties about the quality and characteristics of the

underlying mortgages. To make these representations and warranties enforceable, the

Sponsor gets access to the loan files at sale. The Sponsor then creates a trust. The trust

pools the loans and issues RMBS notes. Investors, like Plaintiffs, that purchase the trust’s

notes have a right to the cash flow from mortgage payments on the underlying loans.

       The fifteen RMBS trusts involved here were created by various financial

institutions and organized under Delaware law. Plaintiff IKB S.A. bought thirty-two

securities issued by these trusts between 2005 and 2007. It sold these securities to various

buyers, including Plaintiff IKB A.G., well before this litigation began.

       Each RMBS trust from which Plaintiffs purchased securities had two trustees, an

“Indenture Trustee” and an “Owner Trustee.” Defendant-Appellee WTC served as the

Owner Trustee for each of the fifteen trusts. WTC, a Delaware corporation, helped the

trusts comply with the requirement that all trusts organized under the Delaware Statutory

Trust Act have at least one trustee that “has its principal place of business” in Delaware.

12 Del. C. § 3807(a). WTC’s role as Owner Trustee was primarily ministerial, involving

limited duties such as executing documents on behalf of the trusts and accepting service

of legal process. In return for carrying out the Owner Trustee role, WTC collected a

modest annual fee of $3,000 per trust.

       The Indenture Trustees, by contrast, shouldered substantive responsibilities. Each

trust appointed an Indenture Trustee to represent the investors’ interest. The Indenture

Trustee’s responsibilities included monitoring performance, managing the collateral for


                                              3
the investors’ benefit, and enforcing the trusts’ rights under the securitized loans. But

many trust management functions were lawfully delegated to third parties.

       The trusts were governed by a set of agreements, including: the Trust Agreement,

the Indenture, and the Servicing Agreement (collectively, “Governing Agreements”). 1

Plaintiffs assert WTC breached duties owed under the Trust Agreements and Indenture

Agreements.

       The Trust Agreement creates the trust, describes the trust’s property (the mortgage

loans), assigns authority and duties to the Owner Trustee, and provides for distribution to

the certificate-holders. WTC is a party to the Trust Agreement, which is governed by

Delaware law. Although the Trust Agreement does not assign responsibility for managing

the mortgage loans, Plaintiffs point to Trust Agreement provisions outlining WTC’s role

and authority to “conduct the business of the Trust” to support their view that WTC owed

contractual obligations to the investors. A1313 (Trust Agreement (TA) § 2.01).

       The Indenture, which is governed by New York law, defines rights and

responsibilities connected to the trust’s securities. The Indenture refers to the trust as

“Issuer,” and it defines the Issuer’s responsibilities to manage collateral loans. Under the

Indenture, the Issuer may contract a third-party administrator to perform its duties. The



1
       Although the Governing Agreements vary slightly from trust to trust, we accept
Plaintiffs’ undisputed observation that for purposes of this appeal “[e]ach of the relevant
contractual provisions is substantively similar in all of the Governing Agreements and
imposes substantially similar duties and obligations on Wilmington Trust as Owner
Trustee.” A148 (Compl. ¶ 319).
       Citations to the Governing Agreements refer mainly to the “sample provisions” in
the Joint Appendix. Citations to the Joint Appendix are styled as “A” in this opinion.

                                               4
Indenture assigns the Indenture Trustee fiduciary duties, including that to “use the same

degree of care and skill in their exercise as a prudent person would exercise or use under

the circumstances in the conduct of such person’s own affairs” in the event of default.

A70 (Compl. ¶ 75) (quoting Indenture § 6.01 (emphasis removed)). WTC itself is not

party to the Indenture. Instead, WTC executed the Indenture, as well as other contracts,

on behalf of the trust.

                                              B.

       Plaintiffs sued WTC and M&T Bank, as successor by merger, 2 in New York state

court, seeking money damages for breaches of contract and implied covenant of good

faith. The Complaint chronicles a chain of misconduct and the later destruction of the

trusts’ value, and from this series of events Plaintiffs accuse WTC of three express

breaches of contract and a breach of the implied covenant of good faith. First, Plaintiffs

allege WTC allowed the Indenture Trustees and others to abdicate their responsibilities

relating to the loan files, including by failing to “take physical possession” of the files

and “require Sellers . . . to cure the documentation problems or repurchase” loans. A148

(Compl. ¶ 321). Second, Plaintiffs claim WTC failed to provide written notice of default

as required by the Governing Agreements, despite its awareness of breaches of

representations and warranties by Sellers. Third, Plaintiffs fault WTC for failing to

intervene to compel the Indenture Trustees to act when the Servicers exercised their


2
       Plaintiffs later agreed M&T was not a proper defendant; because the merger was
not consummated, M&T never became the successor Owner Trustee.
       The fifteen trusts are also named as nominal defendants.


                                               5
duties carelessly. This omission, Plaintiffs contend, amounts to a failure to protect the

trusts. A74–75 (Compl. ¶¶ 89–92). Finally, Plaintiffs say WTC’s failure to act—even if it

did not amount to breach of contract—violates its implied covenant of good faith under

the contracts. A75 (Compl. ¶ 93).

       WTC removed the case to federal court, and the U.S. District Court for the

Southern District of New York granted WTC’s motion to transfer venue to the District of

Delaware. There the trial judge granted WTC’s Rule 12(b)(6) motion, dismissing all of

Plaintiffs’ claims. The trial court also held IKB S.A. “lack[ed] standing to assert any

claims under the agreements” because it relinquished all claims arising from the bonds

when it sold them. A13. Plaintiffs now appeal.

                                             II.

       The trial court had removal jurisdiction under 28 U.S.C. § 1441(b). We have

jurisdiction to review its final decision under 28 U.S.C. § 1291. We review de novo the

trial court’s grant of a Rule 12(b)(6) motion for failure to state a claim. See Trzaska v.

L’Oreal USA, Inc., 865 F.3d 155, 159 (3d Cir. 2017). “When conducting our review, ‘we

must accept the allegations in the complaint as true . . . [but] are not compelled to accept

unsupported conclusions and unwarranted inferences, or a legal conclusion couched as a

factual allegation.’” Id. (quoting Morrow v. Balaski, 719 F.3d 160, 165 (3d Cir. 2013)

(alterations in original)).

       Contract interpretation presents a question of law we review de novo. United

States v. Hardwick, 544 F.3d 565, 570 (3d Cir. 2008). “[A] motion to dismiss must be

denied” when “the contract provisions at issue are ambiguous.” In re Energy Futures


                                              6
Holdings Co., 748 F. App’x 455, 461 (3d Cir. 2018) (applying New York law); accord

Kahn v. Portnoy, 2008 WL 5197164, at *3 (Del. Ch. Dec. 11, 2008) (applying Delaware

law). This is because “ambiguous terms are interpreted by the jury, unambiguous ones by

the court.” Ram Constr. Co. v. Am. States Ins. Co., 749 F.2d 1049, 1052 (3d Cir. 1984).

                                            III.

       The nub of Plaintiffs’ claims is that WTC should be liable for its failure to compel

other actors to carry out their obligations under the Governing Agreements. To withstand

WTC’s “motion to dismiss for failure to state a breach of contract claim, [Plaintiffs] must

demonstrate: first, the existence of the contract, whether express or implied; second, the

breach of an obligation imposed by that contract; and third, the resultant damage to

[Plaintiffs].” VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003)

(footnote omitted). 3 Plaintiffs’ appeal hinges on the second element: whether WTC

breached a contractual obligation. The Complaint documents pervasive breaches

throughout the securitization chain—from Sellers that stuffed the trusts with

noncompliant mortgages in contravention of their representations and warranties, to

Indenture Trustees and Servicers that failed to identify these defects and carelessly

serviced the loans. WTC is liable, according to Plaintiffs, because it “sat idly by




3
       New York law, which as noted governs the Indentures, imposes another
requirement: Plaintiffs must show they performed under the contract. See Legum v.
Russo, 20 N.Y.S.3d 124, 125–26 (N.Y. App. Div. 2015). That requirement is not at issue
here.


                                              7
watching” malfeasance instead of ensuring these actors faithfully executed their

obligations under the Governing Agreements. Appellants’ Br. 4. We disagree.

       First, we consider and reject Plaintiffs’ contention that the Governing Agreements

assign WTC an overarching duty to protect the trusts. WTC agreed to perform only the

modest functions enumerated in the Trust Agreement, and the Governing Agreements

otherwise shield WTC from the liability asserted. Second, we analyze Plaintiffs’ theories

of breach individually, concluding none states a plausible claim to relief. 4

                                             A.

       The plain language of the Trust Agreement belies Plaintiffs’ characterization of

WTC’s duties as supervisory or expansive. Plaintiffs advance this position by reference

to Trust Agreement language tasking WTC with the general duty “to administer the



4
        The trial court determined IKB S.A. lacked standing to bring claims arising from
the Notes. New York law deprives former securities holders of a right to sue under
contracts governing securities they sold. N.Y. Gen. Oblig. § 13-107(1). IKB S.A. had
sold all of its Notes by November 20, 2008, so the trial court concluded “IKB S.A.
lack[ed] standing to assert any claims under the agreements” and accordingly dismissed
its claims. A13.
        Although the case law applying New York’s bar against former holders refers to it
as an issue of “standing,” the provision more precisely limits the availability of a cause of
action. This provision does not implicate our jurisdiction. See Lexmark Int’l, Inc. v. Static
Control Components, Inc., 572 U.S. 118, 128 n.4 (2014) (quoting Verizon Md. Inc. v.
Pub. Serv. Comm’n of Md., 535 U.S. 635, 642–43 (2002)) (“[T]he absence of a valid (as
opposed to arguable) cause of action does not implicate subject-matter jurisdiction.”). We
are satisfied IKB S.A. has Article III standing to sue: it suffered a redressable injury
traceable to its investment in the trusts. See id. at 125. We need not address the question
whether IKB S.A. has maintained its right to bring this suit despite selling its securities
because we will affirm on the ground that Plaintiffs fail to state a claim.
        Judge Hardiman sees this as a matter of standing and would dismiss IKB S.A.’s
claims accordingly. This disagreement has no consequence for our disposition. We agree
Plaintiffs have failed to state a claim and that their claims were thus correctly dismissed.

                                              8
Trust.” Appellants’ Br. at 15 (quoting A197 (TA § 4.02)). This general duties provision

cannot bear the weight Plaintiffs place on it. Read in the context of the Trust Agreement,

this phrase obligates WTC to perform the duties mandated by the contract, which include

executing documents on behalf of the trust, accepting legal process for the trust, and

acting at the direction of the noteholders. Plaintiffs would have us bootstrap, from these

four words, an overriding duty to protect the trusts, jettisoning provisions explicitly

disclaiming WTC’s responsibility to act. 5 See Stonewall Ins. Co. v. E.I. du Pont de

Nemours & Co., 996 A.2d 1254, 1260 (Del. 2010) (“[A] single clause or paragraph of a

contract cannot be read in isolation, but must be read in context.”) (internal quotation

marks and footnote omitted).

       Plaintiffs also lean on common law trust principles to argue WTC’s “paramount

obligation was to protect the Trusts and [their] assets.” Appellants’ Br. at 15. But these

are not common law trusts, and WTC is not a common law trustee. Leveraging the

contractual flexibility Delaware law makes available, see 12 Del. C. § 3806(c), the Trust

Agreement restricts WTC’s duties, compelling it to act in just two instances: (1) when

obligated to do so by a term of the Trust Agreement, and (2) when instructed to do so and

indemnified by the certificate-holders. Otherwise, WTC owes no duty to act.




5
       In a similar vein, Plaintiffs attempt to fashion a broad “duty to protect” from Trust
Agreement language affirming WTC will hold the collateral in trust for the exclusive
benefit of the noteholders. But Plaintiffs elide this provision in their complaint. Because
“arguments asserted for the first time on appeal are deemed waived,” United States v.
Rose, 538 F.3d 175, 179 (3d Cir. 2008), we will not consider it.

                                              9
       It is true the Trust Agreement affords WTC broad discretion to act. But Plaintiffs

cannot convert this discretion into a contractual obligation. The Trust Agreement

contemplates such arguments and resolves them against Plaintiffs, providing: “The right

of the Owner Trustee to perform any discretionary act enumerated in this Trust

Agreement or in any Basic Document shall not be construed as a duty . . . .” A201 (TA §

6.01(f)). The Trust Agreement further disclaims any responsibility for WTC concerning

managing the collateral. Reading these grants of discretion as obligations conflicts with

other provisions, too, which foreclose assigning WTC any implied duties under the

Governing Agreements.

       The plain language of the Indenture similarly limits WTC’s responsibilities under

those agreements. WTC executes the trust documents on behalf of the trusts (which are

referred to as “Issuers”), but it is not itself responsible for carrying out the Issuers’ duties.

Instead, the Indenture assigns the Issuers’ substantive responsibilities to other parties, not

WTC.

                                               B.

       With this understanding of WTC’s limited duties in mind, we turn to Plaintiffs’

allegations of breach. As noted, Plaintiffs claim three express breaches: (1) WTC violated

its duties in connection to how trust participants handled the mortgage loan files; (2)

WTC violated its duty to provide notice of default; and (3) WTC breached its duty to

protect the trusts by failing to ensure the Indenture Trustee and Servicers enforced the

trust’s rights. None of these theories of breach states a claim, and therefore Plaintiffs’

breach of contract claims fail.


                                               10
                                              1.

       Plaintiffs’ claim that WTC violated duties concerning the loan files is

unconvincing because they cannot tie WTC to the alleged transgressions through any

obligation it owed under the Governing Agreements. Plaintiffs complain the Indenture

Trustee never “ensure[d] that key documents for the loans were included in the mortgage

files.” A72 (Compl. ¶ 83). This failure transgressed the Indenture Trustee’s obligation “to

review (or cause to be reviewed) each of the mortgage files for the mortgage loans and

certify that the documentation for each of the loans was accurate and complete.” A68

(Compl. ¶ 70). WTC is liable for these failures, according to Plaintiffs, because it knew

about the deficiencies yet did nothing.

       No provision of the Governing Agreements holds WTC responsible for taking

possession of the loan files or policing others in this way. The Trust Agreement in fact

withholds from WTC any obligation to “deal with the [c]ollateral.” A199 (TA § 4.04).

Plaintiffs ignore this and point to Indenture provisions concerning “Protection of

Collateral,” but these assign duties to the Issuer—the trust itself.

       Because “[o]nly WTC as Trustee was in a position to cause the Issuer to perform

[the trust’s] obligation,” Plaintiffs argue the Issuers’ duties pass to WTC. Appellants’ Br.

15. We disagree. The Indenture contemplates the trust will retain a third-party

administrator to execute its duties. It then instructs the third-party administrator to

perform the Issuer’s duties under the Indenture, “monitor the performance of the Issuer,”

and report back to WTC as needed. A2002 (Indenture § 10.01) (emphasis removed). This

provision contradicts Plaintiffs’ assertion that WTC is responsible for the Issuer’s duties.


                                              11
       As noted, the Indenture says “[n]o recourse may be taken . . . with respect to the

obligations of the Issuer . . . against . . . the Owner Trustee in its individual capacity . . . .”

A1030 (Indenture § 10.15). This provision then references Trust Agreement terms that

sharply limit WTC’s potential liability. The Trust Agreement sections referenced, among

other things, reiterate WTC “shall not be liable for the default or misconduct of the

Depositor[,] Indenture Trustee,” and others, and WTC has “no obligation or liability to

perform the obligations of the Trust under this Trust Agreement or the Basic Documents

that are required to be performed by the Indenture Trustee or the Securities Administrator

under the Indenture . . . .” A200 (TA § 6.01(e)).The clear language of the contracts

defeats Plaintiffs’ theory of breach. So it fails to state a claim.

                                                2.

       Plaintiffs’ second allegation of breach—that WTC violated the Governing

Agreements by neglecting to give notice of defaults—fails for the same reason. No

provision of the Governing Agreements obligates WTC to notify others of Sellers’

breaches of representations and warranties. The Servicing Agreement does require that

various actors—including the Seller, Master Servicer, and a Responsible Officer of the

Indenture Trustee—notify the Originator when breaches of representations and

warranties are discovered. But the provision makes no mention of the Owner Trustee,

WTC. The Indenture requires the “Issuers” to provide notice of default. But the Issuer’s

obligations, as we have explained, do not pass to WTC under the terms of the Governing

Agreements. Plaintiffs’ attempt to bypass the clear language by reference to WTC’s




                                                12
general duty to “administer the trust” is unavailing for the reasons described above.

Lacking an express provision WTC violated, Plaintiffs’ allegation fails to state a claim.

                                             3.

       Plaintiffs’ finally allege WTC “breached its contractual duties under the

Governing Agreements by failing to protect the trust estate by ensuring that other parties

to the Governing Agreements enforced the Trusts’ rights under the Governing

Agreements” and loan documents. A148 (Compl. ¶ 321). But WTC had no such duty.

       As discussed, WTC had no overarching supervisory role concerning the trusts or

their collateral. Even accepting Plaintiffs’ characterization of rampant servicing

problems, the Governing Agreements impose no relevant duty on WTC. Plaintiffs cannot

hold WTC liable for others’ violations. The Servicing Agreement makes clear the Master

Servicer must oversee the Servicer to ensure the collateral loans are properly managed.

Lacking an express hook on which to hang this allegation, Plaintiffs purport WTC had a

sweeping duty to protect the trusts as evidenced by common law trustee principles and

out-of-context snippets from general provisions. This allegation fails to state a claim.

                                             C.

       Plaintiffs’ breach of implied covenant of good faith claim—which essentially

repackages their breach of contract claims—fares no better. The implied covenant of

good faith protects against “arbitrary or unreasonable conduct” that defeats the

“overarching purpose of the contract” and allows the violator to take advantage of his

“position to control implementation of the agreement’s terms.” Dunlap v. State Farm

Fire & Cas. Co., 878 A.2d 434, 442 (Del. 2005) (internal quotation marks and footnotes


                                             13
omitted). To prevent such abuses, courts will imply terms “to ensure the parties’

reasonable expectations are fulfilled.” Id. (internal quotation marks and footnote

omitted). Courts do so reluctantly. An implied covenant claim will only succeed when it

is clear from the contract the parties would have agreed to the implied provision had they

contemplated it. See id.

       Plaintiffs’ implied covenant claim tries to convert discretion into an affirmative

duty. This fails for the reasons discussed above: the plain language of the Governing

Agreements forecloses the implied duty Plaintiffs propose. See Homan v. Turoczy, 2005

WL 2000756, at *18 (Del. Ch. Aug. 12, 2005) (“[C]ourts should not imply alleged

obligation where the contract addresses the subject of the alleged wrong, but fails to

include the obligation alleged.”). Moreover, an implied duty to protect the trusts would

fundamentally alter the parties’ rights and responsibilities under the agreements. It is

difficult to imagine WTC—which bargained for limited liability and agreed to perform a

set of modest functions in return for a $3,000 annual fee—would willingly agree to

sweeping supervisory responsibility. Plaintiffs’ proposed adjustment goes well beyond

demanding WTC avoid “arbitrary or unreasonable” conduct. Dunlap, 878 A.2d at 442.

Therefore Plaintiffs’ implied covenant of good faith claim fails.

                                          *          *   *

       Because we conclude the trial court correctly dismissed Plaintiffs’ claims, we do

not address whether New York law barred IKB S.A. from suing, whether the statute of

limitations barred any claims, or whether the no-action clause operated to bar any claims.

                                              III.


                                              14
       For the reasons provided above, we will affirm the District Court’s dismissal of

Plaintiffs’ claims.




                                            15
