You can't have it both ways.

That was one of the themes hammered home by Shearman & Sterling's Joseph Frank, who prevailed on Wednesday for Japanese financial giant Nomura in a case with hundreds of millions on the line. But the impact goes beyond Nomura—the 5-2 decision by New York's highest court could save billions for other banks in similar situations.

Given the magnitude, complexity and high stakes of the dispute, Frank, who is global co-head of Shearman's securities litigation and enforcement practice, was our clear-cut choice for litigator of the week.

The case involves residential mortgage backed securities, that hot potato of liability stemming from the financial crisis.

But this is not like the investor suits by FHFA and others claiming securities law violations—those are all but finished, the statute of limitations long past.

Rather, this is the first in a new line of pending cases, ones that allege contractual violations. And with contract disputes, plaintiffs can take advantage of a six-year statute of limitations, plus they don't need to prove tricky things like scienter or reliance.

“But there's a flip side,” Frank said. “The damages are much more limited. Here, the plaintiff wanted the best of both worlds—to bring the suit as a breach of contract action … but without the contractually limited remedy the parties bargained for. They wanted unlimited damages, like in an investor case.”

He describes the litigation as “an odyssey… one of those 'We fought them in the trenches, we fought them in the hills'” battles.

Indeed, it was filled with twists and turns, including two arguments before New York's highest court. The first was in March, and then again after the untimely death of Judge Sheila Abdus-Salaam.

The fight started when HSBC Bank USA, National Association, as trustee of four residential mortgage loan securitization trusts, sued Nomura for misrepresentations regarding business practices and certain securitization transactions.

HSBC, represented by Holwell Shuster & Goldberg's Michael Shuster—a former partner at Kasowitz, Benson, Torres & Friedman and at White & Case, where he was global head of commercial litigation—alleged that it was deceived about the quality of the underlying mortgages. For example, HSBC said that the files contained inflated property appraisal values, that some houses were falsely represented as being owner-occupied, that the income and employment of borrowers was inaccurate.

The contract between Nomura and HSBC—both hyper-sophisticated entities—contained a so-called “No Untrue Statement Provision.” It states, “This Agreement does not contain any untrue statement of material fact or omit to state a material fact.”

HSBC argued Nomura violated that provision with its false mortgage docs—and therefore, it's entitled to collect general contract damages.

Not so fast, Frank countered for Nomura.

He points to another provision in the contract. That one mandates that the “sole remedy” for breaches of mortgage loan-specific representations and warranties is to cure the defect or repurchase the loan. Which, not coincidentally, would be a whole lot cheaper for Nomura to do than exposing itself to whatever contract damage theories the plaintiffs could come up with. “It would be an open-ended invitation to the plaintiffs to put up any number,” Frank said.

The cost of buying back loans, by contrast, would be set—plus the plaintiffs would have to show, loan by loan, that the underlying documents were in fact misleading.

The underlying contractual question—what to make of the “no untrue statement” versus “sole remedy” language—goes beyond Nomura and HSBC. Frank said it's also found in other RMBS contracts, which made the case of great interest to other financial services providers. The Securities Industry and Financial Markets Association weighed in with an amicus brief on Nomura's side.

In 2014, Justice Marcy S. Friedman sided with Nomura, ruling that the available relief was limited to the narrow repurchase provision. She dismissed the plaintiff's claim with prejudice.

But in October of 2015, the tables turned. The state Supreme Court Appellate Division reversed Friedman and sided with HSBC.

The New York Court of Appeals, which accepts less than 10 percent of cases that petition, agreed to hear the case. Two judges—Chief Judge Janet DiFiore and Associate Judge Michael Garcia—recused, leaving a panel of five. After the death Abdus-Salaam, that left four. Without explanation, the court then asked to re-hear the argument.

In some ways, isn't that every appellate advocate's dream? To get a do-over?

“It was a very strange feeling, arguing twice,” Frank said. “It was an opportunity to really anticipate and hone in on what each individual judge was thinking.”

Frank said his core message was simple: “All we were trying to do was get the court to enforce the letter of the contract that the parties agreed to.”

Writing for the majority, Judge Leslie Stein was persuaded.

“The contract terms providing for a 'sole remedy' are sufficiently clear to establish that no other remedy was contemplated by the parties at the time the contract was formed,” she wrote. “The sole remedy for breaches of the Mortgage Representations is cure or repurchase. HSBC cannot 'subvert this 'exclusive remedies' limitation' of liability by simply re-characterizing its claims.”

Shearman & Sterling

You can't have it both ways.

That was one of the themes hammered home by Shearman & Sterling's Joseph Frank, who prevailed on Wednesday for Japanese financial giant Nomura in a case with hundreds of millions on the line. But the impact goes beyond Nomura—the 5-2 decision by New York's highest court could save billions for other banks in similar situations.

Given the magnitude, complexity and high stakes of the dispute, Frank, who is global co-head of Shearman's securities litigation and enforcement practice, was our clear-cut choice for litigator of the week.

The case involves residential mortgage backed securities, that hot potato of liability stemming from the financial crisis.

But this is not like the investor suits by FHFA and others claiming securities law violations—those are all but finished, the statute of limitations long past.

Rather, this is the first in a new line of pending cases, ones that allege contractual violations. And with contract disputes, plaintiffs can take advantage of a six-year statute of limitations, plus they don't need to prove tricky things like scienter or reliance.

“But there's a flip side,” Frank said. “The damages are much more limited. Here, the plaintiff wanted the best of both worlds—to bring the suit as a breach of contract action … but without the contractually limited remedy the parties bargained for. They wanted unlimited damages, like in an investor case.”

He describes the litigation as “an odyssey… one of those 'We fought them in the trenches, we fought them in the hills'” battles.

Indeed, it was filled with twists and turns, including two arguments before New York's highest court. The first was in March, and then again after the untimely death of Judge Sheila Abdus-Salaam.

The fight started when HSBC Bank USA, National Association, as trustee of four residential mortgage loan securitization trusts, sued Nomura for misrepresentations regarding business practices and certain securitization transactions.

HSBC, represented by Holwell Shuster & Goldberg's Michael Shuster—a former partner at Kasowitz, Benson, Torres & Friedman and at White & Case, where he was global head of commercial litigation—alleged that it was deceived about the quality of the underlying mortgages. For example, HSBC said that the files contained inflated property appraisal values, that some houses were falsely represented as being owner-occupied, that the income and employment of borrowers was inaccurate.

The contract between Nomura and HSBC—both hyper-sophisticated entities—contained a so-called “No Untrue Statement Provision.” It states, “This Agreement does not contain any untrue statement of material fact or omit to state a material fact.”

HSBC argued Nomura violated that provision with its false mortgage docs—and therefore, it's entitled to collect general contract damages.

Not so fast, Frank countered for Nomura.

He points to another provision in the contract. That one mandates that the “sole remedy” for breaches of mortgage loan-specific representations and warranties is to cure the defect or repurchase the loan. Which, not coincidentally, would be a whole lot cheaper for Nomura to do than exposing itself to whatever contract damage theories the plaintiffs could come up with. “It would be an open-ended invitation to the plaintiffs to put up any number,” Frank said.

The cost of buying back loans, by contrast, would be set—plus the plaintiffs would have to show, loan by loan, that the underlying documents were in fact misleading.

The underlying contractual question—what to make of the “no untrue statement” versus “sole remedy” language—goes beyond Nomura and HSBC. Frank said it's also found in other RMBS contracts, which made the case of great interest to other financial services providers. The Securities Industry and Financial Markets Association weighed in with an amicus brief on Nomura's side.

In 2014, Justice Marcy S. Friedman sided with Nomura, ruling that the available relief was limited to the narrow repurchase provision. She dismissed the plaintiff's claim with prejudice.

But in October of 2015, the tables turned. The state Supreme Court Appellate Division reversed Friedman and sided with HSBC.

The New York Court of Appeals, which accepts less than 10 percent of cases that petition, agreed to hear the case. Two judges—Chief Judge Janet DiFiore and Associate Judge Michael Garcia—recused, leaving a panel of five. After the death Abdus-Salaam, that left four. Without explanation, the court then asked to re-hear the argument.

In some ways, isn't that every appellate advocate's dream? To get a do-over?

“It was a very strange feeling, arguing twice,” Frank said. “It was an opportunity to really anticipate and hone in on what each individual judge was thinking.”

Frank said his core message was simple: “All we were trying to do was get the court to enforce the letter of the contract that the parties agreed to.”

Writing for the majority, Judge Leslie Stein was persuaded.

“The contract terms providing for a 'sole remedy' are sufficiently clear to establish that no other remedy was contemplated by the parties at the time the contract was formed,” she wrote. “The sole remedy for breaches of the Mortgage Representations is cure or repurchase. HSBC cannot 'subvert this 'exclusive remedies' limitation' of liability by simply re-characterizing its claims.”